JPMorgan Chase recently warned that since the Federal Reserve last raised interest rates in July, the rise in long-term US treasury bond bond yields is not a typical market reaction. The bank pointed out that the current performance of the bond market is similar to that of 1969, when the United States experienced an economic recession after bond yields soared.
Since the beginning of this year, the Federal Reserve has slowed down the pace of interest rate hikes, announcing a pause in interest rate hikes after the June monetary policy meeting, a 25 basis point hike in July, and another pause in interest rate hikes in September.
In a report released on Wednesday, JPMorgan analysts pointed out that in the past 12 Fed tightening cycles, the bond market typically experienced a "bull market steepness" after the last rate hike, where short-term yields fell faster than long-term yields.
But in 1969, there was a "bear market steepening", when long-term yields climbed faster than short-term yields. The current bond market is a repeat of this unusual pattern. The historic collapse of the US treasury bond bonds has pushed the yields of 10-year and 30-year treasury bond to more than 5%.
Given that a 25 basis point interest rate hike in July may be the last of this tightening cycle, the experience of 1969 can provide some inspiration for the current situation.
That is to say, in the 1969 cycle, three months after the last interest rate hike, the recession began, indicating that the current steepness of the bear market may continue until there are clearer signs of slowing growth, "said JPMorgan.
However, so far, sustained strong economic data has masked signs of recession, with US GDP growth reaching its fastest pace in two years in the third quarter.
According to data released by the US Department of Commerce's Bureau of Economic Analysis on Thursday, the initial reading of the US gross domestic product (GDP) for the third quarter was 4.9%, a new high since the fourth quarter of 2021. The expected market growth rate is 4.7%, with a previous value of 2.1%. This demonstrates the resilience of the US economy.
JPMorgan also pointed out that the economic recession after the 1969 tightening cycle had a relatively mild impact on the earnings of S&P 500 index companies.
In terms of risky assets, once signs of recession begin to emerge, using the 1969 US economic recession as a reference, we found that the stock market experienced a decline in the first six months of the recession, but then quickly recovered, "analysts said.