Analyst: The U.S. bond market suggests that the Federal Reserve is far behind the situation in terms of interest rate cuts

BlockBeats reports that on September 10, Nicholas Colas, co-founder of DataTrek, stated that the long-term expected relationship between the yields of 2-year and 10-year U.S. Treasury bonds is not the only recession warning issued by the bond market last Friday.

The sharp drop in the yield of 2-year U.S. Treasury bonds has also pushed the spread between short-term bills and federal funds rates to at least their most negative level in 50 years. Colas pointed out that during this period, there have been only three times when this spread fell below -1%, and each time a recession began within a year after such an event occurred. However, Colas does not believe this will necessarily lead to a recession. He said that a catalyst is needed to trigger an economic downturn, but so far nothing has happened in America which could potentially cause such severe economic slowdown.

On contrary, this inversion indicates bond traders are increasingly worried about Federal Reserve's inability to lower borrowing costs timely under slowing labor market conditions. In his report on Monday, Colas said: "The US bond market is saying that Fed is far behind in terms of cutting interest rates."