US 10-Year and 2-Year Treasury Yields Invert Temporarily... Signal of Economic Recession?

[Asia Economy New York=Special Correspondent Joselgina] The brief inversion of the US Treasury yield curve, considered a precursor to a recession, has sparked growing concerns about an economic downturn.

According to Bloomberg and other sources on the 29th (local time), the yield on the 2-year US Treasury briefly surpassed that of the 10-year Treasury at around 2.39% in the afternoon.

This is the first time in two and a half years since September 2019, when the US-China trade conflict was at its peak, that the 2-year Treasury yield has inverted the 10-year yield. Bloomberg reported that "for just a few seconds, the 2-year yield was higher than the 10-year yield." Since then, the spread between the 2-year and 10-year yields has been moving within 5 basis points (1bp = 0.01 percentage points). Previously, the 5-year and 30-year Treasury yields inverted for the first time since 2006.

Typically, yield curve inversion is interpreted as a sign of an impending recession. The market generally regards the yield spread between the 10-year and 2-year Treasuries as the most predictive. Since 1960, whenever the long- and short-term Treasury yields inverted?except in 1966 and 1998?a recession occurred within 1 to 2 years.

In particular, concerns about a recession are expected to grow if the Federal Reserve, the central bank, accelerates its tightening measures to curb soaring inflation. The probability of the US entering a recession within the next 12 months is forecasted to be over 30%, and over 50% for Europe. The Ukraine crisis has caused energy prices to surge, raising fears of stagflation, where inflation rises amid economic slowdown.

However, some in the market are cautious about interpreting this inversion as a definitive recession signal. Michael Wilson, Chief US Equity Strategist at Morgan Stanley, stated, "A flattening yield curve does not necessarily indicate a recession."

As Federal Reserve Chair Jerome Powell previously mentioned, the wide spread between the 10-year and 3-month yields adds weight to the cautious stance on recession. Jeff Kleintop, Chief Global Investment Strategist at Charles Schwab, described the signals as "mixed every week," noting, "The 2-year to 10-year spread looks bad, but the 3-month to 10-year yield spread is steep."

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