Yield Curve Crashes: 10Y Yield Plunges Below Fed Funds With 3M-10Y In Freefall

Traders are watching in horror as the yield curve just took another sharp leg flatter (or more inverted as the case may be) as a sudden bout of 10Y buying sent the 10Y yield sharply below 2.40%, which as a reminder is the effective Fed Funds rate, sliding as low as 2.375%, the lowest since 2017, as the 10-year yield dropped as much as 6.4bps on Monday, after sliding 9.8bps on Friday.

This means that the curve is now inverted through the 10Y point: as shown in the chart below, all coupon tenors from 2Y to 10Y are now below the rate guaranteed by the Federal Reserve.

The 10Y yield has tumbled more than 20bp since the FOMC on March 20 cut its forecasts for growth and inflation and said it no longer expected to raise interest rates this year and would stop its balance-sheet run-off in September.

Meanwhile, the Fed's favorite recession indicator - the spread between the 3 Month Bill and the 10Y Treasury - has plunged further into negative territory, and at last check had dropped as low as -7bps, as the next US recession is now barrelling toward the US.

As a result, the US Treasury yield "curve" now looks like... the Nike swoosh

Not surprisingly these recession alerts have hit risk assets, with stocks sliding as sentiment turns increasingly sour, not helped by Apple's announcement that it will compete not only with banks, with the launch of its Apple Card 3% cash back, no fee credit card, but also with gaming stock companies which plunged after Apple unveiled a new arcade and gaming service, and lastly hitting Roku and Netflix as Apple discusses its "new" TV App which will offer HBO, Showtime and Starz on demand.

The fear of course is that with Apple now encroaching on several key "service" markets, this will lead to another bout of deflation as a new scramble to gain and preserve market share will take place as company after company slashes costs to remain competitive with the world's most valuable company.