One of the more reliable warning signals for a recession is starting to shine
FILE - Trader Robert Charmak, right, works on the floor of the New York Stock Exchange, Tuesday, Dec. 7, 2021. The “yield curve” is watched for clues to how the bond market is feeling about the U.S. economy’s long-term prospects. On Tuesday, a closely followed part of the yield curve gave investors some cause for concern.At the center of the investing world are Treasurys, the IOUs the U.S. government gives to investors who lend it money.
Others market observers, including officials at the Federal Reserve, view the relationship between the 3-month and 10-year Treasurys to be the more important one. Every recession in the past 60 years has been preceded by an inversion of the yield curve between the three-month and 10-year Treasurys. Now, the two-year yield is surging as investors ratchet up expectations for a more aggressive Fed. The central bank has already pulled its key overnight rate off its record low, the first increase since 2018, in hopes of beating down high inflation. It's also preparing to hike rates several more times, and the Fed has indicated it may do so by double the usual amount at some meetings. That has helped the two-year yield more than triple in 2022 alone.
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