The bond curve inverts to a level not seen in two decades
As rates rise, so do concerns about how they will affect growth and risk assets.
“That’s going to have significant ramifications for US risk assets, we just haven’t seen it yet,” Lyngen said. “I suspect we are looking at a recalibration of expectations going forward that will ultimately end with a flatter curve, or deeper investment in the US and risk assets under pressure.”
The spread of the yield curve between 2-year and 10-year bonds hit -58 basis points on Thursday, a negative spread means a curve inversion, that is, short-term bonds (2 years) have a higher yield long-term (10 years).
Typically, the longer the maturity of the bond, the higher the yield. It is like a reward to investors for waiting time. But seeing a risk in the short term, 2-year bonds outperform longer-dated bonds.
The current inversion of the yield curve is the largest in at least two decades, indicating investors’ fear of an impending recession in 8 to 24 months, at least that is what has happened, every time the curve is inverted, on at least 8 previous occasions since the 1960s.
With information from Reuters.