Growing Recession Warning... US Treasury 10-Year and 3-Month Yields Also Invert

[Asia Economy New York=Special Correspondent Joselgina] The warning signs of an economic recession surrounding the United States have grown louder. This is due to the deepening inversion phenomenon in bond markets, which signals the risk of a recession about a year later. Following the 2-year U.S. Treasury yield, the 3-month yield has now also surpassed the long-term benchmark 10-year yield.

In the New York bond market on the 26th (local time), the 3-month U.S. Treasury yield was trading at 4.043%, exceeding the 10-year yield (4.031%). The 3-month yield began to surpass the 10-year yield intraday on the 24th and further widened the inversion on this day.

The phenomenon where long-term bond yields fall below short-term yields is generally interpreted as a signal of an impending recession. Following the inversion between the 10-year and 2-year yields in early July, the 3-month yield also breaking above the long-term 10-year yield has raised concerns in the market that recession warnings are intensifying. This suggests that investors are pessimistic about long-term growth to the extent that the 10-year yield is lower than the 3-month yield.

In particular, the inversion between the 10-year and 3-month yields is an indicator closely monitored by the Federal Reserve (Fed). Fed Chair Jerome Powell drew a line early this year when the 2-year yield temporarily exceeded the 10-year yield, raising recession concerns, emphasizing that the spread between the 10-year and 3-month yields was at its largest level in the past five years.

Wall Street has also paid more attention to the 10-year?3-month trend than the 10-year?2-year inversion, considering the shortening cycle of economic volatility. The New York Times (NYT) reported, citing economist Arturo Estrella, a former official of the New York Federal Reserve Bank, that since the late 1960s, recessions have occurred within 6 to 15 months after the inversion of the 3-month and 10-year yields. Dr. Estrella emphasized that this is a "discriminant for judging recessions." Quincy Crosby, Chief Global Strategist at LPL Financial, also evaluated that the inversion phenomenon "has very strong predictive value."

The key issue is how long this inversion will last. If the inversion between the 3-month and 10-year yields continues until the November 1?2 FOMC meeting, where the Fed decides its monetary policy, concerns about a recession based on this will likely intensify. Debates about how quickly and how deep the upcoming recession will be are also expected to ignite.

Currently, the Fed is continuing its giant step (0.75 percentage point rate hike) approach to lower stubborn inflation. However, as concerns grow that excessive tightening could cause an unnecessary recession, calls for a slowdown in pace have recently gained momentum.

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