ALL THINGS BIG AND SMALL 2.0

Announcement: New Payroll Inputs for Stagflation Risk Dashboard from 1 Sep 2025 Let’s refresh our memory on the   current inputs of our stagflation risk model before we talk about the new Payroll input. 2s10s Yield Curve Spread What it is: The 2s & 10s yield spread refers to the difference in yields between the 2-year and 10-year U.S. Treasury bonds. It is calculated by subtracting the yield of the 2-year bond from the yield of the 10-year bond. Why it matters:  A yield curve inverts when long-term interest rates drop below short-term rates, indicating that investors are moving money away from short-term bonds and into long-term ones. This suggests that the market as a whole is becoming more pessimistic about the economic prospects for the near future. Breakeven Inflation and 5y5y Forward with CPI What it is: A simple approximation of expected inflation 5–10 years ahead using 2 × (10Y breakeven) − (5Y breakeven). Why it matters: A measure of long-run inf...

 Data as of 15 Aug 2025 Sources: CPI YoY from BLS API (CUSR0000SA0; fallback FRED CPIAUCSL). Breakevens (T5YIE, T10YIE), TIPS (DFII5, DFII10), curve (DGS2, DGS10), and HY OAS (BAMLH0A0HYM2) from FRED. Takeaway: The probability mix reflects the current balance of risks across inflation, growth, and credit. A higher soft-landing share aligns with firm real yields and contained credit spreads; a tilt toward stagflation rises when breakevens and OAS widen while the curve re-inverts. Compare with 11 Aug Probabilties (below) A soft-landing muddle-through scenario now seems probably.  For methodology and explanation of inflation scenarios see: https://ngtiankhean.blogspot.com/2025/08/usa-stagflation-risk-dashboard-11-aug.html  Breakeven Inflation and 5y5y Forward Insight: 5Y breakevens proxy near-term inflation expectations and move with energy and supply shocks. 10Y breakevens anchor longer-run inflation views; stability near 2 percent suggests credibility of the Fed targe...