US 5 and 2-year and 5 and 3-year Treasury yield spreads moved negative yesterday for the first time since 2007, with the 10 and 2-year spread a minuscule .13 this morning.

In Canada, the 10 and 2-year spread is also at a cycle low of .08 as shown here in my partner Cory Venable’s chart.

As we have been saying all year, central banks will not get as many hikes in as they hoped this cycle before the next recession overwhelms optimistic forecasts and prompts them into loosening mode once more. However, a rate pause and even further cuts typically work at a multi-month lag, which is unlikely to support equities and corporate debt anywhere near this cycle’s highs.

Indeed, as we have also noted repeatedly, the particularly precarious condition of the Canadian economy this cycle is giving the Bank of Canada (BOC) less fire room than the US Fed this cycle, making the BOC likely to pause within the next two months. Spreading recognition of this reality is putting a bid under Canadian government bonds once more, while equities and corporate debt deservedly continue to struggle.