Mar 30, 2022 - Economy & Business

Interest rate inversions reflect questions about economy's health

Data: FactSet; Chart: Baidi Wang/Axios

It's really happening. We're within spitting distance of the long-awaited inversion of the yield curve — at least the portion of it that covers the 2-year and 10-year notes.

What's new: Yields on the 2-year note briefly went higher than that of the 10-year note on Tuesday.

  • Those notes ended the day at 2.37% and 2.40%, respectively — leaving just a hair between the current world and the massive economic anarchy that yield curve purists believe will surely ensue once long-term rates fall below those of short-term rates.

Backstory: When the cost for the government to borrow over the short term is higher than the cost for a longer period, that's known as an inverted yield curve (the curve between the 5-year and 30-year also inverted this week).

The big picture: While an inverted yield curve is one of the most reliable indicators of a looming recession, it's also subject to a wide range of interpretations.

  • Meanwhile, the version of the yield curve that's supposed to have the best track record of predicting economic downturns is the gap between the three-month bill and the 10-year Treasury note — which right now remains hugely positive.

The bottom line: Still, the flattening curves seem to reflect growing concerns on Wall Street that the Fed is going to have to push the economy into a recession by jacking up rates — sort of a Volcker shocklette — if it's really going to get inflation under control.

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