US 2 year/10 year yield curve are currently at their deepest inversion in 42 years

On Monday, a significant part of the U.S. Treasury yield curve experienced its most pronounced inversion since the time of high inflation under Fed Chairman Paul Volcker. This inversion reflects concerns in the financial markets that the prolonged cycle of interest rate hikes by the Federal Reserve will push the United States into a recession.

The widely monitored difference between the yields of 2-year and 10-year U.S. Treasury notes reached its widest point since 1981, standing at -109.50 during early trading. This inversion was even deeper than the one observed in March during the U.S. regional banking crisis. Currently, the gap stands at -108.30 basis points.

Market participants have priced in the possibility of additional interest rate hikes this year to control inflation due to signs of strength in the U.S. economy. Just a couple of months ago, futures markets indicated expectations of rate cuts at the central bank's September meeting, but now they anticipate the first cuts to occur in January.

Ian Lyngen, head of U.S. rates strategy at BMO, mentioned in a note on Monday that the lack of significant buying activity is due to uncertainty regarding the future direction of monetary policy. Once investors gain confidence in Powell's perspective on the ultimate interest rates, the prevailing bearish sentiment will likely be replaced by a more balanced outlook.

An inverted yield curve, where short-term Treasuries yield higher returns than long-term ones, has consistently signaled upcoming recessions. According to a 2018 report by researchers at the San Francisco Fed, the 2/10 year yield curve has inverted between six and 24 months before each recession since 1955, with only one false signal in that time.

The spread between 2-year and 10-year Treasuries has remained inverted since July of last year.

In morning trading on Monday, the two-year U.S. Treasury yield, which usually moves in tandem with interest rate expectations, increased by 3.6 basis points to reach 4.913%. Meanwhile, the yield on 10-year Treasury notes rose by 1.2 basis points to 3.831%.

tastytrade logo+
Get the best broker for options trading and earn Unusual Whales discounted! in cash with an eligible account deposit at tastytrade. Get an Unusual Whales bonus when you deposit $2000. Offer expires 3/31/25. Certain restrictions, terms and conditions apply.
Unusual Whales does not confirm the information's truthfulness or accuracy of the associated references, data, and cannot verify any of the information. Any content on this site or related pages are not intended to provide legal, tax, investment or insurance advice. Unusual Whales Inc. is not registered as a securities broker-dealer or an investment adviser with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”) or any state securities regulatory authority. Nothing on Unusual Whales should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by Unusual Whales or any third party. Options, investing, trading is risky, and losses are more expected than profits. Please do own research before investing. Please only subscribe after reading our full terms and understanding options and the market, and the inherent risks of trading. It is highly recommended not to trade on this, or any, information from Unusual Whales. Markets are risky, and you will likely lose some or all of your capital. Please check our terms for full details.
Any content on this site or related pages are not intended to provide legal, tax, investment or insurance advice. Unusual Whales Inc. is not registered as a securities broker-dealer or an investment adviser with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority (“FINRA”) or any state securities regulatory authority. Nothing on Unusual Whales should be construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any security by Unusual Whales or any third party. Certain investment planning tools available on Unusual Whales may provide general investment education based on your input. You are solely responsible for determining whether any investment, investment strategy, security or related transaction is appropriate for you based on your personal investment objectives, financial circumstances and risk tolerance. You should consult your legal or tax professional regarding your specific situation. See terms for more information.