Bond Traders Ring Recession Alarm on Imminent Curve Inversion
- The gap between two- and 10-year notes has been narrowing
- Traded one-year forward, spread already shows curve inversion
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The world’s biggest bond market is flashing signals that the risk of a U.S. recession is increasing -- even before the Federal Reserve raises interest rates.
The Treasury yield curve has collapsed to near inversion -- a situation when short-term rates exceed those with longer tenors, which has often preceded a downturn. The move has intensified just before the Fed’s all-but-certain rate liftoff next week, with a surge in commodity prices raising the specter of inflation being more persistent than anticipated. Forward markets already show traders preparing for two- and 10-year rates to be inverted in a year.