A closely monitored section of the U.S. Treasury yield curve inverted on Tuesday for the first time since September 2019, a reflection of market concerns that the Federal Reserve could tip the economy into recession as it battles soaring inflation.
For a brief moment, the yield on the two-year Treasury note was higher than that of the benchmark 10-year note . That part of the curve is viewed by many as a reliable signal that a recession could come in the next year or two.
Investors are now concerned that the Federal Reserve will dent growth as it aggressively hikes rates to fight soaring inflation, with price pressures rising at the fastest pace in 40 years. Western sanctions imposed on Russia after its invasion of Ukraine has created new volatility in commodity prices, adding to already high inflation.
Some analysts say that the Treasury yield curve has been distorted by the Fed's massive bond purchases, which are holding down long-dated yields relative to shorter-dated ones.Another part of the yield curve that is also monitored by the Fed as a recession indicator remains far from inversion.Either way, the lag from an inversion of the two-, 10-year part of the curve to a recession is typically relatively long, meaning that an economic downturn is not necessarily a concern right now.
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