Treasury Curve Inversion Deepens to Level Last Seen in 2007

One of the US bond market’s most widely watched indicators of
potential recession risk has reached levels last seen in 2007.

The yield on the benchmark 10-year Treasury note moved to be as much
as 10 basis points below the 2-year rate, eclipsing the
9.5-basis-point gap reached in early April.

So-called inversions of the yield curve — situations in which
longer-term rates are below those on shorter-dated maturities — are
often seen by observers as a potential harbinger of recession, and the
spread between 2 years and 10 years is one of the most widely watched.
The last time this particular yield curve was inverted was in 2007,
before the financial crisis of 2008-2009.

The current inversion comes amid increasing concern that measures
taken by central banks to rein in inflation might end up putting the
economy into recession. That fear has helped drive a rebound in
Treasury prices that’s taken the benchmark 10-year rate from around
3.5% in mid-June to around 2.91% on Tuesday. The two-year yield,
meanwhile, was around 3.01%.

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