US Treasury 5-Year and 30-Year Yields Invert for First Time in 16 Years... Growing Recession Warning Signals

[Asia Economy New York=Special Correspondent Joselgina] Concerns about an economic recession are growing as some short- and long-term U.S. Treasury yields have inverted. The inversion of the 5-year and 30-year Treasury yields is the first since 2006.

According to the economic media CNBC, on the morning of the 28th (local time), the 5-year U.S. Treasury yield briefly reached 2.6361%, surpassing the 30-year yield of 2.6004%. In the afternoon, the 5-year yield surged further to 2.673%. However, it later stabilized to the 2.54% range and is currently below the 30-year yield (in the 2.57% range).

This is the first time in about 16 years since 2006 that the 5-year yield has exceeded the 30-year yield. Typically, yield curve inversion is interpreted as a precursor to a recession. Earlier this month, an inversion occurred between the 5-year and 10-year yields. The market generally considers the yield spread between the 10-year and 2-year notes to be the most predictive.

As of this afternoon, the 10-year yield stands at around 2.47%, higher than the 2-year yield of 2.32%. However, the yield spread has narrowed significantly to about 0.15 percentage points from 0.92 percentage points at the beginning of the year.

CNBC reported that "the yield spread between the 2-year and 10-year notes, which traders watch closely, has not yet inverted," but also noted that "investors are selling short-term Treasuries and buying long-term Treasuries, showing concerns about the economy." This is explained by a sell-off mainly in short-term bonds as the U.S. Federal Reserve (Fed) is expected to pursue aggressive rate hikes to curb inflation.

Seth Carpenter, Chief Global Economist at Morgan Stanley, said, "If the Fed raises rates to a level that constrains the economy, the yield curve will invert," adding, "As has always been the case in the past, the market will debate whether the yield curve inversion signals a recession. Basically, we see a higher possibility of an inversion without a recession."

However, Fed Chair Jerome Powell previously drew a line, stating that yield curve inversion does not necessarily indicate a recession. He emphasized that the short end of the yield curve has not yet flattened and remains steep. Nevertheless, the 10-year yield has been rising sharply following Powell’s hawkish remarks.

This content was produced with the assistance of AI translation services.