The yield curve has inverted. Markets are pricing in a recession, but not stagflation. Are Central Banks reluctant to increase rates aggressively in an effort to stabilizing stock markets? Volatility could hit hard. Eyes on, oil, NATO and Putin.

Are the markets mispricing inflation/stagflation volatility, while being too optimistic on a Russian, Ukraine solution to Putin's restructuring of Eastern Europe?   Probably.   The short end yield curve has inverted, which, in layman's terms means that the market is correctly pricing a recession in America, buying long dated bonds and selling the short end, hence why the 10 YR has been spiking.  But, it maybe overconfident that inflation is being contained, thus, a stagflation recession has most likely technically arrived.  There is an assumption that oil prices could end up lower beneath $100, which is very unlikely as Putin is determined to counter play the West's sanctions, by asking for oil and gas in Rubles, discussed in this post.  Which, is seen as the Putin 'put'.

Would could be occurring, with a sharp decline in volatility, is the reluctance of Central Banks to be aggressive in an interest rate cycle, by attempting to maintain a bid stock market or at least a stabilized one.  Yes, this is what happens when markets become too institutionalized.  But, as we have all seen before, it doesn't take much, when portfolio adjustments are delayed, volatility hits mighty hard. 

And we could be on the cusp, as noted in this post.

The above chart shows the parabolic spike in the VIX (S&P 500) volatility index, hitting 34 on the 7th March 2022 about a week in from the Russian invasion of Ukraine,  the 10 YR followed suit, trailing as a correlation of inflation and rate hike expectations.   The VIX has since collapsed to 21 with the 10 YR now diverging away from the volatility index as it continues to price in risk of a recession.