A mysterious high-stakes wager on long-term government debt placed back in June has been revealed to have been made by Northwestern Mutual Wealth Management. The $2.7 billion bet on BlackRock’s 20+ Year Treasury Bond ETF (TLT) sent shockwaves through the bond market, prompting speculation about a looming economic downturn.
According to Bloomberg Brent Schutte, the firm’s chief investment officer, confirmed the massive purchase, asserting that it was a strategic move in anticipation of a recession that could be triggered by a cooling labor market.
With the recent rally in Treasuries, the bet appears to be paying off early for the $300 billion asset manager, which said it plans to hold onto its TLT position across retail portfolios for at least one year.
Treasuries have rallied recently as investors fear a looming recession after discouraging economic data fueled their gains. As CryptoGlobe reported, a “concerning” economic indicator in the United States is currently pointing to an incoming recession after accurately predicting the last recessions over the last 75 years accurately.
That indicator, the US unemployment rate, has now risen for four consecutive months, its longest growing streak since the 2008 Financial Crisis. Every time the US unemployment rate rose for four months straight over the last 75 years, the country’s economy entered a recession.
The recession indicator comes shortly as another key recession indicator was triggered with the rise of the unemployment rate in the United States last month, leading to massive market sell-off that wiped $5 trillion off of equities.
The unemployment rate rise triggered the Sahm Rule, a recession indicator that measures the three-month moving average of the U.S. unemployment rate against its previous 12-month low, and is triggered when the rate rises 0.5% from that low.
The Sahm rule, according to Investopedia, is named after Claudia Sahm, a macroeconomist who worked at the Federal Reserve. According to Yahoo Finance, Sahm herself has said that the unique dynamics of the labor market after the COVID-19 pandemic, however, could render the rule less useful in calling a recession.
Per Bloomberg’s report, JPMorgan has recently raised its chances of the US economy tipping into a recession this yar to 35%, up from 25% a month ago. To Schutte, the job market is “usually the last thing to break” ahead of a recession. He was quoted as saying:
It’s taking longer to get to a recession because of all the excesses that were pumped in the economy — the liquidity, the excess savings, the lower interest-rate environment that had allowed corporations and consumers to refinance.
Per his words, we may already be in a recession, and added he doesn’t see the Federal Reserve lower interest rates in September by more than 25 basis points as offiicials battle to rein in inflation.
Notably prominent macroeconomist, Henrik Zeberg, has recently reiterated his prediction of a looming recession that will be preceded by a final surge in key market sectors, but can potentially be the worst the market has seen since 1929, the worst bear market in Wall Street’s history.
Notably the Hindenburg Omen, a technical indicator designed to identify potential stock market crashes, has started flashing just one month after its previous signal, raising concerns that a stock market downturn could be coming.
The indicator compares the percentage of stock reaching new 52-week highs and lows to a specific threshold. When the number of stocks hitting both extremes surpasses a certain level, the indicator is said to be triggered, suggesting an increased risk of a crash.
Featured image via Unsplash.
