Tackle Today: The Yield Curve Inverts
July 5, 2022
«Here’s what it means.»
Traders,
Stocks got rocked Tuesday morning but are recovering midday. One of the ominous-sounding items grabbing headlines in the bond market is the yield curve has inverted. Historically, this signal has presaged a recession, so investors are understandably nervous.
In normal economic times, longer-term yields, like those of the 10-year, are higher than shorter-term yields. It suggests that the Fed has room to raise rates, and the economy can handle a higher cost of capital. But when the yield inverts, short-term yields, like the 2-year yield, climb above long-term yields. Earlier today, the 2-year Treasury yield was at 2.79%, topping the 10-year yield at 2.78%.
Inversions like this usually occur near the end of a rate-hiking cycle when the market no longer believes that high rates will last. In other words, the market signals that the Fed will need to start lowering rates in the not-too-distant future due to an economic slowdown.
If you want to track the 2-year and 10-year yield on ThinkorSwim, you can use these two symbols:
- DGS2:FRED
- DGS10:FRED
Or, you can use this CNBC page.
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Video Of The Day: Inverted Yield Curve Explained
Chart of the Day: U.S. 2Yr/10Yr Spread
This chart tracks the spread between the 2-year and 10-year yields. When it’s negative, the yield curve is officially inverted.
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