Alarm Sounding for Recession

Bond markets are beginning to sound the alarm of an impending recession, with an inversion in U.S. Treasury yields Monday for the first time since before the Great Recession.

Yields on the 5-year Treasury note fell below the yield on the 3-year note, investors are being paid more to hold U.S. government debt for three years than comparable bonds maturing in five.

It’s not the 2-year holding a higher yield than the 10-year, which has preceded every U.S. recession since 1955, but it suggests the market is going in that direction. The inversion of 3- and 5-year yields increases the possibility that an inversion of the 2-year and 10-year yield will happen soon.

The yield curve inverted between the 2- and 10-year yield before every U.S. recessions since World War II, trailing the inversion by six months to two years.

 

 

Photo: “Signs of the times” by Stephen McCulloch is licensed under CC BY 2.0

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