Deepening Inversion of US Treasury Yield Curve Signals Recession, Investors Remain Unfazed

The spread between the 2-year and 10-year U.S. Treasury note yields reached its deepest inversion since 1981, reflecting concerns that an extended Federal Reserve rate hiking cycle could lead to a recession. This yield curve inversion, where shorter-dated Treasuries have higher yields than longer-dated securities, has historically been a reliable signal of upcoming recessions. Market participants have priced in the possibility of additional rate hikes this year to control inflation, but futures markets now project rate cuts starting in January.