2019-05-30 —

So now, the Treasury market with its inverted yield curve and declining yields on the long end is clamoring for rate cuts, and it's acting as if a recession were imminent or has already started. But the junk bond market is acting as if it were a big boom party, and risks are just minor company-specific issues, rather than overall economic issues.

But they cannot both be right. So what gives? ... if bond markets are seen as a predictor of the next downturn, then either the junk bond market or the Treasury market is wrong.

If the junk bond market is wrong, it would be set up for a painful reckoning.

But if the Treasury market -- and the Treasury yield curve -- is wrong, there could be an ugly snap-back in longer-term Treasury yields, and related interest rates, such as mortgage rates.

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