New Extremes Reached in Treasury Note Yield Curve Inversion Spread

On Tuesday, November 29, 2022, investors’ bets on easing inflation and future rate cuts were reflected in the yield curve inversion reaching new extremes as yields on longer-term U.S. Treasury notes fell further below those on short-term bonds than at any time in the past 4 decades. Over the past week, the spread between the U.S. 2 Year Treasury yield and 10 Year Treasury yield approached minus 80 basis points, shrinking to 78.5 basis points on Tuesday. One of the most reliable indicators that a recession is looming, the “more deeply negative the spread becomes, the more worrisome of a signal it’s emitting about the severity of the next economic downturn.” On a positive note, “the spread also reflects the degree to which the bond market still has confidence that policy makers will do what’s needed to bring down” the nation’s highest level of inflation in the past 40-years; and it is likely that “the yield curve will remain inverted until there is a clear sign of a policy pivot from the Fed.”