An inverted yield curve refers to a situation in the bond market where longer-term debt instruments have a lower yield than shorter-term debt instruments.

  • Typically, longer-term bonds have higher yields than shorter-term bonds to compensate investors for the additional risks associated with holding an asset over a longer time frame, such as inflation risk or greater price volatility.
  • An inverted yield curve is often viewed as a signal of an impending economic recession.

You may recall all the warnings of an immenent recession when the yield curve inverted in recent years.

So far, no recession though.

Now its all about a 'de-inverting' yield curve.

  • The spread between the two-year and 10-year Treasury bonds has started to narrow.
  • The 2-10 year yield curve is starting to de-invert as the 10-year Treasury note moved past a 16-year-high to edge closer to the two-year bond.

JP Morgan:

  • "This very recent move in Treasurys has been a little bit more dangerous,"
  • "I think the move in the Treasury market, the disinversion of the curve, I think that actually makes a hard landing much more likely,"
  • It's the highest real rates have been since 2009, a sign that the economy is bound to feel more pain from a higher cost of borrowing. "That's going to hurt businesses. That's going to hurt consumers. It's just going to take some time,"

Also, 'bond king' Jeffrey Gundlach:

  • "The US Treasury yield curve is de-inverting very rapidly,"
  • That "should put everyone on recession warning, not just recession watch,"
  • "If the unemployment rate ticks up just a couple of tenths it will be recession alert. Buckle up."
deinverting yield curve gundlach 06 October 2023