US Yield Curve Inversion – A Possible Recession Signal?
It is reported that for the first time since 1981, the yield of US two-year treasury bond is more than 100 basis points higher than that of 10-year treasury bo…
It is reported that for the first time since 1981, the yield of US two-year treasury bond is more than 100 basis points higher than that of 10-year treasury bond. The yield of two-year treasury bond was as high as 4.9974% in the session, more than 100 basis points higher than the 10-year yield. The last time the two-year yield was lower than the 10-year yield was in July last year. Fed Chairman Powell’s speech suggested that the terminal policy interest rate may need to be higher than previously expected. The interest rate swap contract price shows that the probability of raising interest rate by 50 basis points in March is slightly higher than that by 25 basis points.
The yield curve of 2-10 year US Treasuries was inverted by more than 100 basis points, breaking the record for more than 40 years
Analysis based on this information:
The yield curve inversion in the US has been making headlines lately, with the yield of the two-year treasury bond surpassing the 10-year treasury bond for the first time since 1981. The implications of this inversion have been the subject of much debate and speculation. A yield curve inversion, which happens when short-term bonds have a higher yield than long-term bonds, is often seen as an indicator of an economic recession.
The rise in the yield of the two-year treasury bond is primarily due to the Federal Reserve’s policy of raising interest rates to prevent inflation. However, Fed Chairman Powell’s recent statements indicating that the terminal policy interest rate may need to be higher than previously expected are indicating that the central bank is taking a more hawkish stance on the economy.
Some market analysts’ view is that Fed’s stubbornness to hike interest rates too aggressively could inadvertently push the economy into a downturn. The rise in interest rates could dampen business and consumer spending, and the economic growth could slow down, leading to a recession.
It is important to note, however, that an inverted yield curve is not always a perfect predictor of a recession. There were occasions in history where the inversion had taken place without being followed by an economic recession. Additionally, there are a lot of other factors at play, such as geopolitical tensions, trade wars, and global economic slowdown, to name a few.
That said, the inversion of the US yield curve is concerning, as it is an unprecedented event that could signal an economic downturn. Therefore, it is essential to keep a close watch on the Fed’s policy decisions and the economic indicators to assess the situation properly.
In summary, the recent yield curve inversion in the US has sparked debates and speculation about a possible economic downturn. While the event is concerning, it is not a perfect predictor of a recession, and other factors must be taken into account while assessing the situation.
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