Higher returns in the short term than in the long term are considered abnormal and reinforce expectations of a slowdown in growth.
The yield on US 2-year Treasury bonds on Tuesday exceeded the 10-year yield for the first time since 2019, inverting another slice of the Treasury curve and reinforcing the view that the A Federal Reserve rate increase could cause a recession.
The reversal came as 2-year bond yields rose while 10-year bond yields fell, surpassing the 2.39% level. Prior to 2019, when the curve reversed in August during the US-China trade dispute, the last sustained reversal of the Treasury curve occurred in 2006-2007.
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Short-term returns are higher than long-term ones abnormal, noting that high levels of short-term returns are unlikely to persist as growth slows. The reversal of the 2- to 10-year portion of the Treasury curve is the latest in a series that began in October, when 20-year yields outperformed 30-year yields. In the past month, the investment has reached segments of seven to ten years and five to seven years, among others.
There is not always a recession when the curve reverses, but “historically, There was no recession without investment.”says Ben Emmons, global macro strategist at Medley Global Advisors LLC. “It is very likely to predict a recession in the future. However, the timing is unknown. It could be up to two years.”