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

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

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

The yield on the 10-year US Treasury note has fallen to its lowest level since last September – and that suggests rising expectations of an economic downturn, according to him. A slide in market rates such as bond yields typically reflects bets for interest-rate cuts – a scenario that would accompany a sharp slump in growth.

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

“Rising or falling rates are neither bull nor bearish for risk markets like stocks or credit. It depends on why they are rising or falling,” Bianco said in a Thursday tweet. 

“In this case, why are rates falling? Because the economy is fine, and inflation is returning to a long-run rate of 2%? If so, this is bullish for risk assets. Or are rates falling because storm clouds are gathering over the economy, led by worries in the banking industry? If this is the case, this is not bullish for risk assets,” he added. 

“I’m in the storm clouds camp,” Bianco continued. 

Bianco has previously looked to bond-market indicators to gauge the health of the US financial system. Most recently, the founder of market research firm Bianco Research highlighted heightened volatility in the bond market as a warning sign that trouble is mounting in the US banking sector – specifically that a run on deposits after the implosion of Silicon Valley Bank will continue, and lead to a credit crunch. 

Concerns about a potential US economic slump, even a recession, have increased again following this week’s data that suggests the labor market is finally weakening after a year of monetary policy tightening by the Federal Reserve.