This year has been a great start for global stocks. The global stock market rally indicates investor appetite for risk has returned. Equities and lower quality fixed income investments rose sharply, recouping much of their 2018 losses and, in some cases, approaching all-time highs. The S&P 500 index marked its first record since September 2018. At the same time, however, the bond markets are reflecting much more uncertainty about the economy— even hinting at a possible recession. The yield on the benchmark 10-year Treasury note, used as a reference for setting mortgage rates to auto loans, now sits at 2.57% as of Wednesday night’s close, dropping below the level from the start of the year. The U.S. Treasury yield curve continued to flatten and, for the first time since 2007, inverted between 3-month bills and 10-year treasuries. Investor demand for higher quality bonds such as Treasuries are often considered a hedge against market and economic uncertainty. Bond yield falls as bond prices rise. Lower interest rates are hence often interpreted as a sign of slower growth. Clearly, stock and bond markets are signaling a very different story, but which one is right?

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