Inverted Key US Yield Curve Slice Probably Warns Of Recession: Reuters

The U.S. Treasury yield curve inverted on Tuesday for the first time since September 2019, reflecting market concerns that the Federal Reserve could tip the economy into recession as it tackles inflation.

For a brief moment, the yield on the two-year Treasury note was higher than that of the benchmark 10-year note, viewed by many as a reliable signal that a recession could come in the next year or two.

Reuters reported that the 2-year, 10-year spread briefly fell as low as minus 0.03 of a basis point before bouncing above zero to 5 basis points.

Investors are now concerned that the Federal Reserve will impair growth after raising rates to fight inflation, with price pressures rising at the fastest pace in 40 years.

Western sanctions imposed on Russia after its invasion of Ukraine have created new volatility in commodity prices, adding to already high inflation.

Some analysts say that the Treasury yield curve has been distorted by the Fed's bond purchases, holding down long-dated yields relative to shorter-dated ones.

The three-month, 10-year part of the curve, currently at 184 basis points, another recession indicator, remains far from inversion.

Meanwhile, analysts say that the U.S. central bank could use roll-offs from its massive $8.9 trillion bond holdings to help re-steepen the yield curve if it is concerned about the slope and its implications. The Fed is expected to reduce its balance sheet in the coming months.

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