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Expand chart
Data: Federal Reserve Bank of St. Louis. Two-year, Three-month; Chart: Andrew Witherspoon/Axios

The 10-year/3-month yield curve inverted on Friday and has remained underwater since, but the 10-year note continues to hold a higher yield than the 2-year note, keeping that yield curve positive.

Why it matters: While many consider the 10-year/3-month curve inversion to be a better recession predictor, the 10-year/2-year inversion has precipitated every U.S. recession since World War II.

Details: The 10-year/2-year curve has typically inverted just before the 10-year/3-month curve. It inverted days after the 10-year/3-month curve in 2006 before the Great Recession and ahead of the 1991 and 2000 recessions, according to Federal Reserve data.

The big picture: Investors say a recession is now being priced in, but 1-6-month T-bills hold higher yields than 2-year notes because of uncertainty about what comes next from the Fed.

  • "The market is more worried about the potential for an economic slowdown than the Fed has signaled a willingness to cut rates," BMO Capital Markets' rate strategist Ian Lyngen tells Axios. "Implicitly, the market is testing the Fed’s resolve to keep rates on hold."

Fed fund futures prices show the market sees a 77% chance the Fed cuts rates before December and a 25% chance of multiple cuts this year., according to CME Group's FedWatch. That's a complete reversal from just a week ago when the market saw a 76% chance the Fed would hold rates steady at 2.25%–2.50%.

  • The market has priced a 0% chance of a rate hike this year.

The intrigue: Every yield maturity from 1-month bills to 2-year notes hold higher yields than the 5-year note, and the 6-month bill has the second-highest yield on the curve, trailing only the 30-year note.

  • Investors are typically paid more for holding longer-dated maturities. An inversion of that theme shows greater market fear about what's happening in the short term than in an impossible-to-predict economic climate 10 years or more in the future.

What to watch: The 6-month T-bill has especially high yields because of fear over the recently breached debt ceiling, which will require congressional action to raise by late September or early October, analysts tell Axios.

Go deeper ... Will the yield curve lead to recession? It really is different this time.

Go deeper

Financial fallout from the Texas deep freeze

Illustration: Annelise Capossela/Axios

Texas has thawed out after an Arctic freeze last month threw the state into a power crisis. But the financial turmoil from power grid shock is just starting to take shape.

Why it matters: In total, electricity companies are billions of dollars short on the post-storm payments they now owe to the state's grid operator. There's no clear path for how they will pay — something being watched closely across the country as extreme weather events become more common.

U.S. Chamber decides against political ban for Capitol insurrection

A pedestrian passes the U.S. Chamber of Commerce headquarters as it undergoes renovation. Photo: Andrew Harrer/Bloomberg via Getty Images

The U.S. Chamber of Commerce revealed Friday it won't withhold political donations from lawmakers who simply voted against certifying the presidential election results and instead decide on a case-by-case basis.

Why it matters: The Chamber is the marquee entity representing businesses and their interests in Washington. Its memo, obtained exclusively by Axios, could set the tone for businesses debating how to handle their candidate and PAC spending following the Jan. 6 Capitol attack.

CDC lets child migrant shelters fill to 100% despite COVID concern

Intensive care tents at overflow shelter in Carrizo Springs, Texas. Photo: Sergio Flores/The Washington Post via Getty Images

The Centers for Disease Control is allowing shelters handling child migrants who cross the U.S.-Mexico border to expand to full capacity, abandoning a requirement that they stay near 50% to inhibit the spread of the coronavirus, Axios has learned.

Why it matters: The fact that the country's premier health advisory agency is permitting a change in COVID-19 protocols indicates the scale of the immigration crisis. A draft memo obtained by Axios conceded "facilities should plan for and expect to have COVID-19 cases."