That’s a key milestone for the Treasury market, where short-term yields have been higher than longer-term ones — creating an inverted yield curve — for most of the time since the Fed began a series of 11 interest-rate increases totaling more than five percentage points in March 2022.
The move comes as investors bet the Fed and fellow central banks will turn more aggressive in cutting interest rates amid mounting concern that economic growth is faltering at a faster pace than expected just weeks ago. That has triggered one of the most powerful bond-market rallies since fears of a banking crisis flared in March 2023.
The disinversion of the yield curve may mean the US economy has entered a recession, said James Athey, a portfolio manager at Marlborough Investment Management.
“History says that when the curve moves back to a positive slope, you’re in recession,” Athey said. “The signals have been getting a bit more worrying for a while now.”The yield on two-year notes fell as much as 23 basis points to 3.65% on Monday, while the 10-year rate traded at 3.68%. The two-year exceeded the 10-year by as much as 111 basis points in March 2023, the biggest inversion since the early 1980s, according to data compiled by Bloomberg.Bond traders are so concerned after a recent run of weak economic data that they’re now considering whether Fed might deliver an emergency rate cut to head off a downturn. On Friday, the Labor Department reported that employers created just 114,000 jobs in July, far short of what economists were forecasting, and the unemployment rate unexpectedly rose.