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Gary Shilling

Bond Market Rebound Is Bad News for the Economy

US Treasuries are starting to flag a recession that looks to be unavoidable.

The economy is getting worse. 

The economy is getting worse. 

Photographer: Ian Forsyth/Bloomberg via Getty Images

The good news is that yields in US Treasury securities may be near their peak. The bad news is that makes the recession I’ve been forecasting since February more likely.

The current campaign by the Federal Reserve to raise its main policy interest rate -- the overnight federal funds rate -- in response to rapid inflation normally precipitates a business downturn. Since the central bank adopted this measure in 1954, there have been 11 recessions and only three exceptions, or soft landings — in 1966, 1984 and 1996. A soft landing occurs as the central bank lowers the funds rate after a series of increases with no recession unfolding. Until the Fed cuts rates, it’s uncertain as to whether its credit-tightening campaign is over or has merely paused.