The bond market issues a storm warning for the US economy: Bianco

Traders work on the floor of the New York Stock Exchange. Spencer Platt/Getty Images

• The US 10-year Treasury yield has fallen to its lowest level since last September.
• That’s a warning sign that storm clouds are gathering over the US economy, says Jim Bianco.
• Recession fears are back in investor focus thanks to the recent banking turmoil and weak employment data.

The bond market is showing a warning sign that the US economy is headed for a rough patch, says Wall Street analyst Jim Bianco.

The US 10-year Treasury yield has fallen to its lowest level since last September – and that, he says, indicates rising expectations of an economic slowdown. A drop in market rates, like bond yields, typically reflects bets on rate cuts – a scenario that would coincide with a sharp drop in growth.

On Thursday, the 10-year Treasury rate fell to 3.27%.

“Rising or falling interest rates are neither bullish nor bearish for risky markets like stocks or credit. It depends on why they’re going up or down,” Bianco said in a tweet Thursday.

“Why are interest rates falling in this case? Because the economy is doing well and inflation is returning to a long-term rate of 2%? If so, that’s bullish for risk assets. Or are interest rates falling because storm clouds are gathering? the economy, led by concerns in the banking industry? If so, then this is not an uptrend for risky assets,” he added.

“I’m at Stormcloud Camp,” Bianco continued.

Bianco has previously looked to bond market indicators to assess the health of the US financial system. Most recently, the founder of market research firm Bianco Research highlighted heightened bond market volatility as a warning sign that troubles in the US banking sector are mounting – specifically that a rush for deposits following the Silicon Valley bank implosion will continue and lead to a credit crunch.

Concerns over a possible slump in the US economy, even recession, have reignited following data this week suggesting the labor market is finally softening after a year of monetary tightening by the Federal Reserve.

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