Why Longer Treasury ETFs Could Help if a Recession Does Occur This Year
Vanguard has forecasted that inflation will remain sticky, so the U.S. central bank will continue raising rates. But the investment giant also estimates that a recession still won’t hit the U.S. this year. That having been said, while the probability of a deep downturn before year-end is low, it can’t be ruled out. All of this draws attention to Treasury ETFs.
“Recession comes faster than the market anticipates as the labor market quickly deteriorates, and rates fall along the curve, with the short end falling more than the long,” according to Vanguard.
Currently, the curve is sloping upward, with the 10-year yield around 3%. Credit spreads widen between roughly 150 and 200 bps on economic weakness.