Link Spread between 3-, 5-year Treasury yields falls below zero More closely watched 2-, 10-year gap also smallest since 2007 One section of the U.S. Treasuries yield curve just inverted for the first time in more than a decade. The spread between 3- and 5-year yields fell to negative 0.6 basis points Monday, dropping below zero for the first time since 2007. It’s not the best-known measure of the curve. The 2- to 10-year gap is more closely watched as a potential indicator of pending recessions. But Monday’s move could be the first signal that the market is putting the Federal Reserve on notice that the end of its tightening cycle is approaching. Some analysts attributed the short-end underperformance to demand for riskier assets as global trade tensions eased following this weekend’s tariff truce between U.S. President Donald Trump and China’s Xi Jinping. Others pinned it to modestly higher expectations for Fed hikes next year after the summit between the two leaders. Either way, the five-year is faring better because investors anticipate the end of the central bank’s hiking path beyond next year. “The outright inversion could be reflective of the market pricing in some cuts starting in 2020, which may be helping the 5-year tenor outperform slightly,” said TD Securities rates strategist Gennadiy Goldberg. The spread between December 2018 and December 2019 eurodollar futures -- a measure of how much tightening traders expect next year -- reached 27 basis points overnight, meaning just more than one quarter-point Fed hike. It was last at 24.3 basis points, about 1.5 basis points higher than Friday. “It’s a risk-on move, and the relief trade we’re seeing has allowed the front-end to reprice higher,” said Marty Mitchell, an independent strategist. Curve Signal Curve flattening over the past two years has signaled investors’ concern that rising rates against a backdrop of slowing global growth could harm the U.S. economy. Inversion -- where yields at the short end rise above those at the long end -- has been a reliable indicator of recessions. Some analysts cautioned against reading too much into Monday’s inversion. “It’s a minor part of the curve,” said NatWest Markets strategist John Briggs. “I don’t think it necessarily foreshadows anything.” But other parts of the yield curve are also pushing flatter. The 2- to 5-year curve was less than a basis point from inversion Monday. And the spread between 2- and 10-year rates -- arguably the most closely watched section of the curve -- dwindled below 16 basis points, the flattest since 2007. For BMO Capital Markets, 10 basis points is the next level to watch. “The combination of a committed FOMC and mounting global economic headwinds puts the curve below zero as 2019 gets underway,” analysts including Ian Lyngen wrote in a note. “If not then, the March FOMC meeting becomes the most opportune inflection point.” — With assistance by Sophie Caronello
This generally means a recession is coming. That means that democrats are going to be jacking off all over themselves next year while screaming "See, the tax cuts didn't work. The Tariffs caused the recession" I don't look forward to that. But since the founding of the United States, the longest we've ever gone without a recession is 10 years. We're at 9.5 years right now.
inverting? no. actually, short term yield has been dropping lately. 10y also drops below 3%, which is a good news.
Thoughtful intelligent folks from both parties will calmly be saying "See, you already provided stimulus in the form of tax cuts at a point where unemployment was at historic lows and the economy at historic highs so stimulus was least needed. That ballooned the deficit, so now it is much harder to provide a stimulus in the form of tax cuts or spending increases in the inevitable recession that has now occurred, regardless of why it occurred. You were idiots for doing that, as we've been telling you all along."
How does that work? "Really inverted"? Is that the same as "all dead"? So the curve right now is "mostly inverted"?