![]() That suggests investors are expecting the Federal Reserve to pull back on interest rates slowly – a move they are unlikely to do if the economy faces a particularly high risk of recession. That's because forward real yields, which represent the market's expectations of bond yields adjusted for the rate of inflation, have only seen a "modest drop" over the short-term, the bank said. "A look under the hood suggests that forward real rates do not price elevated recession risk and instead may reflect expectation for softer landing vs consensus." "While curve inversion near historical extremes has garnered higher recession probabilities from models, we think curve shape is more a function of expectations for declining inflation than a deterioration in growth," strategists said in a note on Thursday.
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