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Ash Alankar has an interesting piece on Bloomberg about Treasury / Junk decoupling:

The Treasury yield curve has inverted ahead of the past six downturns going back to the 1960s, including prior to the last two recessions in 2000 and 2006. But that was before the era of central bank quantitative easing. Years of unconventional monetary accommodation have led to many market distortions, one of which has been the disappearing term premium, which measures the extra compensation investors need to own long-term bonds instead of continuously rolling over short-term debt. By guaranteeing unprecedented levels of liquidity through its asset purchases, the so-called Fed put has taken risk out of the system and the term premium along with it.
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But [the flattened yield curve] should not be a reason for concern, because all the above distortions mean the shape of the Treasury yield curve is no longer a reliable indicator of an impending recession. A much truer assessment of the threat of a slowdown can be gleaned from the high-yield credit curve, where the impact of central bank policy is much less pronounced.

The spread between two- and five-year Treasuries is less than half the average since the end of the global financial crisis, at 41 basis points versus a mean of 90 basis points. By contrast, the extra yield enjoyed by sellers of five-year high-yield credit default swaps versus two-year high-yield credit default swaps stands 30 basis points higher than the average.

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