Mar 10, 2020 - Economy

The market is already pricing in a U.S. recession and QE from the Fed

Data: U.S. Treasury; Chart: Axios Visuals

The U.S. fixed income and Fed fund futures markets are not only pricing in a U.S. recession and the Fed cutting interest rates to zero, they are now pricing in quantitative easing and asset purchases, analysts tell Axios.

What's happening: After U.S. 10-year yields fell to 0.32%, their lowest level on record, and yields on the 30-year bond dropped to 0.72%, investors began pricing in a bond-buying program from the Fed that would target longer-dated Treasuries.

  • "The market is starting to look towards other measures ... and is very gradually trying to price in a Japanization of the U.S. curve," Subadra Rajappa, rates strategist at Société Générale, tells Axios.

What it means: Japan's central bank has instituted the world's most aggressive monetary stimulus campaign, buying not just government bonds, but also corporate bonds and even ETFs in an effort to help stimulate growth and inflation in the country.

  • The stimulus has had limited effect and the country looks almost certain to fall into recession by the end of the first quarter.

Go deeper: Investors see stocks overvalued, recession looming

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