The yield on the benchmark 10-year Treasury note broke below the 2-year rate, an odd bond market phenomenon that has been a reliable indicator for economic recessions.
The yield on the benchmark 10-year Treasury note on Wednesday broke below the 2-year rate, an odd bond market phenomenon. The move shows increasing worries about the global economy as investors rush into safe haven assets.
Investors are now demanding higher interest rates on short-term debt than they are longer term debt, a phenomena known as an “inverted yield curve.” Investors often give the spread between the 10-year and the 2-year special attention because inversions of that part of the curve have preceded every recession over the past 50 years, albeit even years before an economic downturn hit.
Central banks around the world, including the Federal Reserve, have pivoted once again to easing policies. Major government debt in countries like Germany now have negative yields. “The U.S. equity market is on borrowed time after the yield curve inverts. However, after an initial post-inversion dip, the S&P 500 can rally meaningfully prior to a bigger recession-related drawdown,” wrote Bank of America technical strategist Stephen Suttmeier.
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