Eurodollar Futures Inverted

[Nick Robinson]

On Thursday, 12/2 the Eurodollar Futures curve inverted, and Friday inverted even more.  Although it was not dramatic an inverted yield curve usually forecasts economic conditions that make a recession more likely, or low economic activity.  The Eurodollar is the biggest market in the world as it is all dollars created outside of the US, ~70% of all dollars.  This would imply that in the upcoming months the global market will have lower productivity.  The US bond market is saying the same thing with 10yr treasuries continuing to fall the bonds are projecting slow growth.  Considering the FED cannot really control interest rates and at best can control the short end of the curve it would seem to me that Jay Powell would be in a position where he cannot raise rates.  Last week on Macrovoices the person they interviewed even was projecting the 10yr would drop to 1%.  Usually when there is an inverted yield curve the response is to lower rates, but will they keep going lower?

I wanted to see if anyone is watching this, or anyone has any thoughts.  As of right now there is about a 20basis point difference between the 5yr and 10yr US treasuries.  *Disclaimer* the bond markets are projecting low economic growth and Euro dollar futures are projecting low growth and a high probability of a recession.  That is not projecting the housing market crashing significantly but you would assume during a recession, or period of slower economic activity, that the amount of people buying houses would shrink which should lower demand.