Flipped, turned upside down: The yield curve just inverted

3/29/22 8:00PM

The yield curve flipped, turned upside down

‍Yesterday the US yield curve inverted — a sign that historically has been an eerily good predictor of a potential future recession, most recently when it inverted in 2006 and 2007 before the global financial crisis of 2008.

‍Why does this matter?

‍Typically, if you were lending someone money you'd expect a higher interest rate if you were going to lend to them for a longer period, say 10 years, than a shorter one, say 2 years. The same is typically true in the billion-dollar bond markets. A longer time frame usually means more time for something to go wrong (inflation, a pandemic, a war etc.), and hence a higher interest rate — which is why when that relationship flips, investors take notice.

This time the inversion was super brief, with the spread between 10-year and 2-year treasury bonds going negative for just a brief moment on Tuesday. But brief might be enough; a yield curve inversion has preceded every US recession in the past 50 years (per the FT).

Max Knoblauch22h

Paramount reportedly receives $24 billion from Gulf funds to back its Warner Bros. takeover

Three Middle East sovereign wealth funds have agreed to back Paramount’s takeover of Warner Bros. Discovery to the tune of roughly $24 billion, according to Wall Street Journal reporting.

The company’s triumph over Netflix in the bidding war came thanks in part to financial backing from Oracle cofounder Larry Ellison, billionaire father of Paramount CEO David Ellison.

Saudi Arabia’s PIF, which last year led the $55 billion deal to take Electronic Arts private, will provide about $10 billion in the deal. The Qatar Investment Authority and Abu Dhabi’s L’imad Holding Co. is also involved.

According to the WSJ, the funds will not receive voting rights in the combined Paramount-Warner company. Those working on the deal don’t expect the Gulf funds’ involvement to spark any additional regulatory reviews.

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The company’s triumph over Netflix in the bidding war came thanks in part to financial backing from Oracle cofounder Larry Ellison, billionaire father of Paramount CEO David Ellison.

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That’s less than 1% of its peak market cap about four years ago.

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JetBlue is raising its bag fees as fuel costs squeeze airlines

JetBlue will reportedly hike its bag fees, as the cost of jet fuel continues to climb amid the war in Iran. It’s the latest example of carriers finding ways to push rising costs onto travelers.

Last week, United Airlines CEO Scott Kirby said that if fuel prices remain elevated, fares would need to rise another 20% for his airline to break even this year.

As CNBC reported, when one airline raises fees, others tend to follow.

Earlier this month, JetBlue hiked its first-quarter outlook for operating revenue per seat mile to between 5% and 7%, saying that strong Q1 demand helped “partially offset additional expenses realized from operational disruptions and rising fuel costs.” Now, the carrier appears to be making moves to further boost revenue to offset those costs.

Earlier on Monday, JetBlue rival Alaska Air lowered its Q1 profit forecast. The refining margins for the carrier’s cheapest fuel option — sourced from Singapore and representing about 20% of Alaska’s overall supply — have spiked 400% since February.

JetBlue did not immediately respond to a request for comment.