Analysts and investors closely watch for this early warning sign.
When the economy is healthy, yields — the interest rates investors are paid for buying government bonds — should be higher on longer-term bonds.This year, short-term Treasury yields — which tend to be driven by expectations for the Federal Reserve's monetary policy moves — have shot higher, to 2.2% from about 0.75%.yields on longer-term Treasuries — which tend to be more sensitive to the outlook for economic growth and inflation — have risen too, but a lot more slowly .
The yield on the 10-year note is now only about a quarter percentage point higher than the two-year note, with many analysts expecting to see the 10-year fall below the two-year — an inversion! — sometime soon."If this continues, the risk is for an inverted yield curve," wrote Bank of America analysts in a note last week. "2s-10s inversions have preceded the last eight recessions and 10 out of the last 13 recessions.
The economy remained strong, and for a while, it seemed like the curse of the inverted yield curve had been broken.Then COVID arrived, and the U.S. suffered one of its most severe economic downturns on record. The predictive power of the yield curve lives on.
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