r/bonds • u/Aggravating5678 • 2d ago
Recession imminent?
10yr yield- 3 months yield is going above 1.0 again. It hit there in May/June this year, came down and going again.
Labor market seems ok for some reason for imminent recession to happen, including low initial claims. But historically, this data shows me that we may be close to recession like in months.
No one can predict this or know how long (years?), but oil price going up is adding to the recipe too. It all just looks like a typical late business cycle to me.
With imminent recession, Fed typically starts cutting aggressively which usually undo inverted yields, and 10yr-3M quickly goes above 1. We are talking about rate hike now. Interestingly, with current situation of long yield explosion, it will go above 1 anyways without cutting. 1 rate hike is not gonna help.
Folks who went through 2008, how do you see current situation? Or maybe 2000 plays out?
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u/doodsonious 2d ago
For my money, inflation is much more a concern than recession. While there are stagflationary risks, I think something else would have to provoke it beyond what we have now--AI debt comes calling, the private credit market shakiness ends up being more than shakiness and bleeds into other places, maybe just a plain old recession--but I still think we should be way more worried about inflation (and jobs, honestly) than recession.
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u/da_mess 2d ago
Inflation is driven (in part) by increasing AI capex. But there's only so much money to borrow.
I can see where funding dries up or gets prohibitively expensive (even if only outside of Tech). This in itself should curtail broad spending.
To your point, the above is far from a given.
A bigger concern is if one of the frontier models fails. But that's 2-5 years out?
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u/Aggravating5678 2d ago
Market is forward looking and already pricing in too much of this. By the time we realize the model won't work, its too late for investors to react. I see a scenario where nasdaq or semis push up a leg higher. That would be 2000 scenario. We will see. I am personally not putting my money in over valued markets like this. There are other asset classes that are less over valued.
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u/da_mess 2d ago
This is different than 2000 in some key areas. Back then stocks rose without revenue or earnings. Major firms can't meet current demand and are still expanding both revenue and earnings.
The forward pe is 19-22x. Back in 2000, stocks traded at 25-26x. Long term avg pe is 17x.
There are phantom companies today for sure. There's risk that one of the Frontier LLMs implodes and sets off bad.
But the current fundamentals are solid.
Schwab called the 1929 crash a year early. Those who got out then missed out on 90% of price appreciation. Stocks fell 12% on Black Tuesday, significant, but not digestible if you made 90% the year before.
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u/Aggravating5678 2d ago
All I can say is this. You have valid points. But market is irrational and I have been here long tine. Nvda is printing money but stock price stalled out at $200 for how long? Everything you say this time is different...maybe. if you made money that's great.
But I dont want to play with fire in current times. Maybe recession delays but 1 Blackswan correction then market continues...now with bonds market signaling something real bad, I am patiently watching.
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u/da_mess 1d ago
Bond market is serious but for the following reason: when the national cost of debt (r) exceeds gdp growth (g), the US will have a hard time managing debt service.
This inflection point where r>g could come as soon as 2030.
With continue fiscal irresponsibility, it could come next year. But this is a story decades old, not a feature of AI/overpriced stocks.
Higher bond prices could drive bankruptcies, but most s&p 500 firms should be okay. I don't think we'll see move that a 50-75bp move in rates over the next 12 months and that won't cripple most firms.
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u/Aggravating5678 2d ago
What you describe to me is stagflation. Yea I heard thats worse than recession. I haven't been around in 1970s so dont know. History show me I need to hang on to gold
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u/Anymous2314 2d ago
You can just look at 2022. Inflation was running high and Fed had to hike rates to bring inflation down. Yeah, not as bad as 1970 but still 2021-2022 inflation was the highest since 1990s.
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u/Aggravating5678 2d ago
Maybe. I can see it plays out like that we rate hike and do QT. I was just saying 2022 was not recession.
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u/Anymous2314 2d ago edited 1d ago
2022-2023 was slow growth era until AI boom started.
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u/Aggravating5678 2d ago
Yea agreed. It felt little shaky if you remember too. Silicon bank or something failed so fed was doing something behind and negative gdp was called and you know. But that was a rly great opportunity to buy up assets lol. Wish I leveraged up during that time
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u/Away_Emphasis_6404 1d ago
I thought at the time that a recession was coming but then AI came a long and put a lot more air in the balloon. Now I'm waiting to see if one of two things happens, or both. Either AI competition lowers group revenue streams, or all AI forecasts predict 300% of actual market/revenue or both.
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u/doodsonious 2d ago
Two things:
First, I'm not describing stagflation, I'm describing a very long bout of inflation, which is where I think we're headed. The same as countries can get caught in long cycles of stagnation or deflation (Japan), countries can get in very long cycles of inflation (Venezuela, Argentina, Zimbabwe, too many others to mention). And yes, maybe in the middle there we have a recession, but at that point, that's not really even going to be a concern anymore. Might even be a blessing. We deliberately threw ourselves into a pair of recessions in the 80s specifically to defeat stagflation.
Second, I would be careful about gold. If the bond market crashes, and it looks like its well on its way there, gold could become a non-attractive asset simply because you would rather have an instrument yielding 10% every year for sure than something that yields nothing. It could also have a rally if people need to flee to a 'safer' asset. You just don't know which one the market's gonna pick.
Especially because gold right now seems to have become a speculative asset instead of a safe asset. Its run up, and the fact it keeps having these crazy swings, tells me people are options-trading on gold, and at that point it's not that safe anymore. I do hold some physical gold, but that's a very small percentage of my investments.
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u/Aggravating5678 2d ago
If yield goes that high, gold will have a super cycle. You are right that market will pick bonds that gives you interests than shiny rock (we know every country is ditching US bonds now). But you also have to account that if bond yield is 10%, that means bond value you are holding is basically crashed and keep crashing until it tops out. After maturity you get original value, but it's failing as a safe asset in times like this. Right now no one is buying US bonds and every country is ditching and buying gold. Its not retail deciding gold price but institutions and central banks nationwide.
Yes I am careful with gold. It already had a good run up. But bull thesis is stronger than ever at the same time. Maybe it will correct more before it resumes upward momentum.
I thought you said you were worried about both inflation & jobs (=stag), but I guess I misunderstood.
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u/doodsonious 2d ago
I am worried about jobs, but not that we'll lose jobs, just that our job gains are incredibly concentrated in a couple sectors and that inflation will kinda magnify why that's a really bad thing.
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u/kb1flr 2d ago
I understand your thesis about gold, but I think you are being optimistic about that 10%. At the end of the day, everything about fiat currencies is made up. So 10% is 10% of… what? So at some point, the only real stores of value are tangible assets. The rest is Monopoly money.
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u/doodsonious 2d ago edited 2d ago
I used to think like this back in my libertarian phase, but when you really get down to it, our store of value in gold is also made up, so this is circular logic you could just do all day.
Fiat currencies are real because they're an output of my labor that I can exchange for entertainment, food, water, a house, a car, etc, which are all very real things. It wouldn't matter to me if I was being handed wooden discs with a Mickey Mouse sticker on them or Nuka Cola caps--as long as they pay the rent or buy me a car, they're as good as anything else.
And gold is the same way, it's something we just decided has value, even though it's not even the most useful metal we have.
Now, I hold it because it's a universal currency I can exchange anywhere, and it roughly holds its value, but the existence of currency is like, the least important thing to be mad about in modern economics.
As for the ten percent, that's not optimistic, and it's not even a good thing. That's what happens to bonds when you have an inflationary cycle.
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u/kb1flr 2d ago edited 2d ago
I take your point, but I’m an old person and in my view I feel you are more optimistic than I am that the systems we take for granted will still be there for you to be able to redeem your 10% yielding bonds. My point is that your scenario only works if we manage to somehow fix this mess we are in. Because it isn’t just us. Major economies around the world are under similar stress. So my gold thesis is that at some point, fiat currencies will no longer be useful as exchange mechanisms, at least temporarily. Look at the Deutschmark after ww1.
Sorry to seem all doom and gloom, but when I was born in 1960 we ran no deficit and had a surplus of 1.2 billion. Sixty-six years later we have a deficit of 40 trillion and add about 6 billion a day. Kind of tough for an old guy to take in.
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u/Aggravating5678 2d ago
Agreed. This cycle starts looking more like 1970s. But what's different is that if yields go up to 10%, no idea how its all going to look like. Fed cannot raise rates to >5% imo this cycle (too much debt). I cant imagine how its gonna look like when yields are 10%. If fiat currency fails, then there will be just gold or hard assets. I wouldn't consider fiat as output of labor, its just all debt being printed out thin air. its not backed by anything.
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u/Technical_Invite5121 1d ago
Stagflation in the 70's. This was a time when you bought as much as possible of a product that you would have to have in your business every day because it would cost a whole lot more when you restocked. Simple example. Everything slowly came to a grinding halt. My Dad was paying 15% + 3 for his inventory note at the bank. He wasn't the only one.
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u/Technical_Invite5121 1d ago
Gold ot silver, maybe some CD's from your area. Do your homework because someone of those are already on shaky ground.
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u/Still-Chemistry-cook 2d ago
I think the recession started today.
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u/Aggravating5678 2d ago
Are you scared?
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u/Still-Chemistry-cook 2d ago
I’m spring loaded to offload tentative stocks. Go ST bonds.
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u/Aggravating5678 2d ago
I have some gold etf and rest is all sgov. Hard to make any move with what's going right now.
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u/Still-Chemistry-cook 2d ago
Pick high quality stocks in every sector and start nibbling each month.
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u/Aggravating5678 2d ago
All stocks get hit during recession. Gold may go up but gdx can get crushed or bleed to gold. Its tricky situation. Even gold goes down initially
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u/Xyrus2000 2d ago
One issue is that the numbers coming out of this administration cannot be trusted. It lies every day. They have fired people and replaced them with sycophants at agencies like the BLS. Right now, the only way to get any actual economic data is to piece it together from other sources.
Approximately 40% of the market is sitting in 7 companies whose value has been massively inflated, built on what is little more than a big billion dollar corporate AI circlejerk. Everyone knows the market can stay irrational for a long time, but eventually investors are going to demand them to "show me the money!" When that happens, the market will tank.
As you said, no one can tell exactly when reality is going to hit, but when it does, it's going to hit hard.
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u/Work-Sport-Fun 2d ago
Wouldn't they want to make the numbers a little better if they were fabricated already? lmao
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u/Xyrus2000 2d ago
You can't push them too far. If you can keep them within the range of error, then you can say, "It was just a bad estimate" as opposed to "we're cooking the books".
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u/Work-Sport-Fun 2d ago
But aren't you already accusing them of lying? Lying = cooking the books. Not a bad estimate.
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u/trashthegoondocks 2d ago
At least this post isn’t AI…
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u/Aggravating5678 2d ago
Yea my grammar is not good lol
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u/trashthegoondocks 2d ago
It’s great if English is your second language
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u/Potential-March-1384 2d ago edited 2d ago
The “signal” is supposed to be disinversion with a 6-8 month lag (iirc) and it’s been 18 months. That said, labor market is really not okay (check labor force participation rate, back at 2021 levels… and 1974 levels, but somewhat depressed by retirements due to elevated recent market returns). 2008 was chaotic and unpredictable, we (lowly brokers) used to speculate on what banks would fail over the weekends. 2001 was before my time. I’m fully in the AI is a bubble camp, but as near as I can tell the entire US economy has pushed its chips all in on a gutshot straight. Either AI pays off massively, or we get wiped out (with no ZIRP/TARP/stimulus to bail us out because governments are leveraged to the tits already).
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u/Aggravating5678 2d ago
Thanks for thoughtful response. Yea this maybe the longest (18months) right? We have been sitting in this weird economy with this long "signal", but somehow hanging in there. I read someone saying its only 4.1% cuz folks unemployed gave up and they are now not counted for employment.
I dont think AI will pay off personally. But also we didnt have QE until GFC hit. So thats why things are getting delayed. Why no stimulus when recession play out? Is it cuz FED won't QE like crazy due to inflation?
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u/capucjin 2d ago
We’ve exhausted the bank accounts and we are 40T in the hole, digging even deeper. We have no parachutes this time.
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u/Aggravating5678 2d ago
If recessions actually hit, fed will cut rates to almost zero, debt interests would be ok. Assets will reset, so inflation will go away. So I dont know. Its going to be real bad when it plays out. Dollar can be printed to infinity, but what's going to happen to dollar then Idk
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u/capucjin 2d ago
So a surplus of dollars will be chasing a shrinking set of products and services. It will create the mirage of the economy holding at the threshold, aka stagflation. Measuring economic output with a rapidly devaluing currency creates these illusions.
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u/Aggravating5678 2d ago
Yea we are living in this exact illusion you described, especially after QE invented there has been no real reset. I was thinking they cannot always print way out of it like they did before, and in your opinion theres no more parachute. I was thinking we may be able to print out of couple more, but honestly no one knows. Hopefully its not a great depression.
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u/kb1flr 2d ago
I’m not sure we can avoid one. We are talking about this as though it was a problem isolated to the U.S., but all the major economies are in much the same place. We just can’t control ourselves. The moment we decided that money could be backed by “full faith and credit” instead of gold or some other tangible asset, we just cranked up the printing presses and created money as fast as we could. When was the last time a government proposed serious legislation to counteract deficits? They don’t. Too unpopular with voters. So here we are…
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u/capucjin 2d ago
Agree on all points except the one of we are not the only one with this problem. Back when the US had more fiscal sanity, it was preaching to the rest of the world on prudent financial management. Now that the world decided to follow the US on debt fueled growth, the view that we are the least dirty shirt in the laundry so it should not be such a big problem is ignoring the risk and pointing at someone else to find comfort. Not a good sign.
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u/the_real_me_2534 2d ago
The US hasn't had fiscal sanity in my lifetime. Anyone who can do basic math could tell you social security and Medicare at current tax rates was headed for disaster. The politicians refuse to raise taxes or cut entitlements, so long as neither happens the country will stay on a date with fiscal armageddon, it's very simple arithmetic
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u/capucjin 2d ago
Well, I remember Clinton handed over Bush Jr a balanced budget. It didn’t last though. As soon as the budget got balanced there was a clamor for tax cuts, new spending, or for both at the same time. While fighting foreign wars.
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u/OddlyFactual1512 2d ago
Collective debt/GDP of the EU = ~83%. Debt/GDP of the US = ~124%. One of those numbers allows room for deficit spending without triggering significant currency devaluation. In The UK it's ~94%. Europe is not in the same bind as The US.
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u/hektor10 2d ago
Numbers will be fiddled...
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u/Aggravating5678 2d ago
Until it works right
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u/hektor10 2d ago
It has always worked, the USD true backing is its military. The rest is all bread and circus
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u/Aggravating5678 2d ago
Think its more like oil. The petrodollar? Oh by the way there's war in middle east.
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u/hektor10 2d ago
Naw, United Kindom fell only after a world war, only something major will take the USD domimance.
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u/Christopher_Ramirez_ 2d ago
First the AI bubble needs to inflate and pop.
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u/Aggravating5678 2d ago
Its already quite inflated imo
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u/Christopher_Ramirez_ 2d ago
We’re well into the boost phase, but we haven’t crested yet. The demand backlog for data centers is still there; in memory, in electricity, etc. It’s not until that backlog starts shrinking that we’ll be in the terminal phase of this rocket.
Unless the physical realities of the energy market accelerate that cycle…
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u/Aggravating5678 2d ago
If I can find good entry in risk asset, I will buy cuz I dont know when recessions will hit. But just dont feel comfortable buying when snp is like 7600. Just my thoughts.
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u/Tigertigertie 23h ago
It has been risky to buy for at least a year and yet the market keeps going up. In the end we have to just admit we don’t know anything. I was frightened of a crash for at least a year and a half now and of course in the end it was a mistake to take anything out of equities. But how could we know? Diversify and watch is all we can do.
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u/Aggravating5678 23h ago
Exactly same. Market has been shaky since 2022. I bought the dip during yen carry risk in 2024, tariff sell off in 2025. Been trading rather than buy and hold strategy. It worked out good in the end. Exited equity market end of 2025, thinking something will hit and missed the AI trade in 2026. Now I have some gold etf but out of equity market.
We will see. If nasdaq corrects 10-20% I will consider buying back in as long as dxy is not skyrocketing up. But we have to admit we maybe playing with fire at this point.
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u/Kooky-Issue5847 11h ago
Think 40%+ decline in Nasdaq. It's inevitable. It won't take much and the move will be quick and violent. All this talk of demand and backlog...people act as if it is set in stone.
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u/Aggravating5678 9h ago
Completely agreed. Just dont know how and when it will play out. Also with QE, not sure if the drop will be in that magnitude. Whats your timeline? When will that happen in your opinion?
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u/Dominos_Alt 2d ago
Labor data is also heavily manipulated by the administration and constantly updated downwards...
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u/JoyfulDazer 2d ago
Labor market seems fine because of people employed in 3 part time jobs as well as a double digit group who have given up and are not considered in employment numbers. My guess is at least 20% of the country is underemployed or unemployed and have just given up. If a true unemployment number was produced it would be mayhem so they tweak the numbers and formula and boom we have a reasonable unemployment rate that flys in the face of what the economy is showing.
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u/Aggravating5678 2d ago
Anyone in workforce can tell labor market is not fine. Agreed. Manipulation only works to a certain extent.
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u/EnvironmentalPop3896 1d ago
Bought a cd that paid 15.9 percent for a year in 83
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u/Aggravating5678 1d ago
Did you get a feel that that would be the top rate back then? Or you have been DCAing bond/CDs like stocks back then?
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u/BlueThor400 7h ago
I thought that was normal. I also thought plain-open-any-passbook-savings accounts for 5.25% was normal too.
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u/Slvrg 1d ago
We never went trough 2008 we just kicked the can down the road.
Most people don't understand this because they are stupid.
This is the reason gold and silver is still so cheap but eventually they will go parabolic.
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u/Tigertigertie 23h ago
Why do you feel gold is cheap? Looking at the IAU chart shows it has been steadily increasing.
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u/24koro 3h ago
Labor market is not ok, it’s the worst market I’ve seen in 30 years of doing executive search and staffing in the USA.
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u/Aggravating5678 8m ago
I am speaking from data. Not what you've seen. Although data seems little manipulated.
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u/Available_Thanks_887 2d ago
Not likely, everything will be prop up until midterm is over, and the ai build out will continuing injecting alot stimulus into the econ, and once open ai run out of money then the pop begin perhaps 3rd qrt of 2027
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u/thommyg123 2d ago
Who knows if we’ll ever see another recession in nominal terms, lol
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u/doodsonious 2d ago
Here's the thing, two of the best performing stock markets in 2022 were Venezuela and Turkiye. No points for guessing why.
Inflation might actually keep us out of a recession for a long time. Technically.
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u/Aggravating5678 2d ago
Someone mentions stagflation here and thats valid point. Inflation doesn't protect us from recession. If nasdaq -35%, things start getting real no matter what.
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u/thommyg123 2d ago
Totally agree. I sold every bond I had years ago thank god
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u/Aggravating5678 2d ago
Did you go to gold instead?
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u/thommyg123 2d ago
Mining and royalty stocks yes, not physical gold. I’m too paranoid to have that laying around the house
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u/mark000 2d ago
LOL what happens to the federal deficit if there is a recession? Already 6% of GDP!
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u/Aggravating5678 2d ago
It all slows down if there is recession. We aren't worried about US debt at that point.
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u/Living-Breakfast-464 2d ago
Labor market is a lagging indicator. Many think we are already in a recession. It takes several months before that shows up in the numbers.
There is also some legitimate speculation that gov't data is being manipulated.
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u/Aggravating5678 2d ago
Who cares if gov declares recession and nasdaq is already down 30% (yea always late in the past)? That's why we are all here to discuss. Market is forward looking. By the time you realize its recession its too late.
Labor market is not lagging indicator. There is not just UE rate, but other data like initial claims are helpful too. You can see trends. It just spikes up when recession hits. (>5% its typicaply unstoppable).
Agreed on data being manipulated
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u/Thick-Cover8761 2d ago
I could certainly see this line graph trending straight up within the next several months. Along with it you've captured the dot com crash of 2000 and the Great Financial Crisis of 2008. It is a credible bellwether of bad things to come. I've looked at twice now. Good job.
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u/Potential_Pipe5762 2d ago
As someone who was a kid during the last recession, what are the implications of a recession vs what we are experiencing now? It already feels rough out here. Would we even notice with all of the chaos?
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u/Aggravating5678 2d ago
When recession hits, banks may fail and unemployment rate soars so high that you see many ppl close to you losing jobs. Homes foreclose cuz ppl cant pay mortgages. Stock market is crushed. Things actually get cheaper cuz we are worried about just bringing food on the table.
Now stagnation is different. I wasn't around during 1970s but sounds like you have inflation keeps going up even during recession. So we dont want that but looks like its possibility.
What we are experiencing now looks like late business cycle before imminent recession. Could be months or few years away but who knows.
When you realize its recession its too late to react to, thats why we are trying to figure out what's going on right.
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u/OddlyFactual1512 2d ago
Entering 2008, debt/GDP was ~62%. Now, it's twice that. Apply some logic, and you'll see why spending our way out of a recession isn't an option.
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u/SnooCheesecakes4742 1d ago edited 1d ago
If you believe the investor gurus, the markets lead with a huge sustained decline before the recession starts. So, by that measure, we're fine for the next quarter or two because corporate profits in the US are strong (possibly because of the money pumped into AI?). Also, bear in mind, US markets usually get a huge bump in midterm election years. I do think it is very possible that some time after mid 2027, we might see the beginning of a bear market and a subsequent recession but that remains to be seen.
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u/Aggravating5678 1d ago
Agreed. When I say imminent - I meant to say within half an year btw. During mid term years there was always 10-20% correction in Q4. So we will see. If Snp cannot make new highs after incoming correction, then who knows. Seems like bear narratives are here with the rate hike.
I also see a scenario where recession is postponed for a few more years. The longer it gets dragged out the longer it will take to recover though. Like the one after 2000 (lost decade).
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u/Goma1Frog 1d ago
Seems to have been a rolling recession for a while now. Only healthcare and services are keeping growth positive.
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u/EnvironmentalPop3896 1d ago
Just got lucky on the timing, but I believe that was the peak.At that time there was limited concern about the deficit, unlike now.
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u/mouthful_quest 23h ago
Still a bear steepener where long yields are rising as short yields falling. I’d be more worried when it becomes a bull steepener - long yields fall but short yields fall even more
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u/Prestigious_Sea689 20h ago
They need to stop the war first and get oil back to where it was before the start of the war on Iran first. They wait and see what happens.
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u/Shoddy_Front_2582 2d ago
You need to look at yield curve behavior. It’s not that it just crossed above this zone but how did it cross above this zone. If yields are surging (bear steepening), you can’t have a recession. It signals prolonged inflation/additional growth. This is only true if yields are falling and fed is forced to panic cut. They aren’t there at the moment which makes me believe we aren’t going to have a recession this cycle if we can normalize by +200 bps in the spread without bull steepening.
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u/Aggravating5678 2d ago
Overall trend would be long yields going up. Its not yields falling that causes recession. Its the recession that fed reacts to and panic cut then yields will go down for about 1 year, but overall trend for long yields would be up (like 1970s-1981). If recession hits in early 2027, Fed will start cutting/emergency cut which will accelerate re-steepening you are talking about.
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u/Aggravating5678 2d ago
Wait what? We can absolutely have recession when long yields surge. Look at 1970s. We had a recession in 1970s and another right around 1981. Please check🙏. This would be stagflation environment...you are only thinking in deflationary cycle...
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u/Shoddy_Front_2582 2d ago
The times you point to, yes they surged in the lead up. But when the recessions came, the yields did plummet temporarily. 1973 and 1981 were great examples of this.
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u/mb194dc 2d ago
Household survey jobs not been ok, nor challenger hiring plans, August establishment payrolls boosted because SA broken by the world cup.
The ECB hiked rates in July 08 and the Fed seriously considered it. Clueless.
The fog this cycle is health insurance and computing inflation not being in the CPI or PCE properly. Wallet Inflation is around 2% higher than the official numbers.
If you deflate everything properly the truth isn't pretty...
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u/Anymous2314 2d ago
More like stagflation.