The recent GDP release marked the second consecutive quarter of negative growth. This intensified the debate about whether the U.S. is in a recession. Putting aside the technical declaration of a ‘recession’, the unusual circumstances of the pandemic and the subsequent government response make this a cycle unlike any other. Although some economic factors are either in or moving towards a recessionary direction (yield curve inversion, pace and magnitude of fed funds rate increases), the labor market remains robust and there are limited areas of clear excess in the economy. The rates market quickly digested the recent GDP data as support for the Fed to pivot its hiking schedule sooner than anticipated. This was evidenced by the 10-Year treasury yield going from ~3.5% to ~2.7% in just 33 trading days. Risk assets also rallied, benefiting from lower rates and the anticipation of less restrictive financial conditions in the future.

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