Here’s a look at what happened, and what it might mean for financial markets.
The main measure of the yield curve deepened its inversion on Tuesday — with the yield on the 10-year Treasury note extending its drop below the yield on the 2-year note — underlining investor worries over a potential recession.
An inverted curve can be a source of concern for a variety of reasons: short-term rates could be running high because overly tight monetary policy is slowing the economy, or it could be that investor worries about future economic growth are stoking demand for safe, long-term Treasurys, pushing down long-term rates, note economists at the San Francisco Fed, who have led research into the relationship between the curve and the economy.
The inversion on this widely-watched measure of the yield curve’s slope since 2007 first took place two weeks ago, when signs of economic weakness across the globe drew investors into haven assets.Why does it matter? The 2-year/10-year version of the yield curve has preceded each of the past seven recessions, including the most recent slowdown between 2007 and 2009.
Read: The U.S. Treasury 2-10 year yield curve inverted and that means stocks are on ‘borrowed time,’ says BAML
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