FirstFT: Bond market flashes red

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Investors in the Treasury bond market are betting that the Federal Reserve’s interest rate rises will drive the US economy into recession, even as stocks rally and analysts suggest the odds of such an outcome are shrinking.

Short-term US government borrowing costs exceeded their long-term equivalents by the widest margin in three months yesterday — and the gap is fast approaching the 42-year record hit during the regional banking crisis in March.

This situation, known as an inverted yield curve, has preceded every recession in the past five decades.

On Wednesday, the yields were 4.74 per cent for the two-year Treasury and 3.78 per cent for the 10-year.

“Bad things happen when the yield curve is inverted,” said Mike Cudzil, a portfolio manager at Pimco. “With very inverted yield curves, you tend to see a slowdown in credit creation.”

Here’s what I’m keeping tabs on today:

Modi in US: India’s prime minister Narendra Modi will address a joint session of the US Congress and attend a state banquet at the White House.
Powell testimony: The Federal Reserve chair Jay Powell will testify before the Senate banking committee. Yesterday, he told members of the House financial services committee that skipping a rate rise last week was “prudent”.
Bolsonaro electoral trial: A top electoral court in Brazil will begin deliberations on whether former president Jair Bolsonaro abused his powers. Here is a preview.
Paris debt summit: French president Emmanuel Macron and Barbadian prime minister Mia Mottley will lead a summit on how to ease the debt burden for developing countries. Mottley spoke to the FT ahead of the conference.
Central bank meetings: The Bank of England is expected to raise interest rates for the 13th consecutive time as it battles persistently high inflation. The central banks of Norway, Switzerland and Turkey also announce interest rate decisions today.

Five more top stories

1. Joe Biden’s top national security aide will fly to Denmark this weekend at the behest of Ukraine’s government for unannounced meetings with representatives from countries that have not condemned Russia’s invasion, including India, Brazil and South Africa. Read more on Jake Sullivan’s diplomatic push.

2. The US Federal Trade Commission has sued Amazon, accusing it of tricking customers into signing up for its Prime service without their consent and “sabotaging” efforts to undo their subscriptions, in the latest salvo by antitrust regulators cracking down on Big Tech. Read more about practices the FTC described as “manipulative, coercive or deceptive”.

3. The large settlements taken from JPMorgan Chase and Deutsche Bank over their links to Jeffrey Epstein are a warning to other banks about their potential exposure to a client’s malfeasance, lawyers for women accusing the disgraced late financier of sex abuse have said. The law firms acting for the victims secured a combined total of $365mn in compensation.

4. A high-profile expert on ethics and dishonesty is facing allegations of dishonesty in her own work and has taken administrative leave from Harvard Business School. The controversy centres around Francesca Gino’s use of allegedly fraudulent data in published papers. Read more on the claims.

5. Rescue crews searching for the Titan submersible in the north Atlantic are focusing their efforts on an area where underwater noises were detected by patrol planes yesterday. But the US Coast Guard, which is co-ordinating the rescue efforts, warned that the source of the noises was unclear, as time runs out for the five passengers onboard. Read the latest on the search.

The big interview

Mustafa Nayyem, head of Ukraine’s reconstruction agency © Charlie Bibby/FT

The World Bank has estimated that Ukraine will need more than $400bn to address the damage from just the first year of the war. At this week’s postwar recovery conference in London, Kyiv has been asking for money and expertise, but above all it needs speed, says the official responsible for overseeing the rebuilding. Mustafa Nayyem, head of Ukraine’s reconstruction agency, speaks to Henry Mance.

We’re also reading . . .

Chart of the day

India’s stock market has regained its status as the world’s fifth-largest stock market, behind those of the US, China, Japan and Hong Kong, after a 14 per cent surge over the past three months. The Sensex index, which tracks India’s 30 biggest companies by market capitalisation, has climbed well above the valuation of the benchmark indices for France and the UK.

Take a break from the news

Shanna Swan has been investigating the impact of chemicals on human fertility for decades and believes she knows why sperm counts around the world are falling.

Additional contributions by Tee Zhuo and Benjamin Wilhelm