[Investing Hacks] Does US Treasury Yield Inversion Always Predict Economic Recession?

Moomoo Learn wrote a column · Jul 7, 2023 02:40

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July 3 (Reuters) - A widely watched section of the U.S. Treasury yield curve on Monday hit its deepest inversion since the high inflation era of Fed Chairman Paul Volcker, in a signal that financial markets see the current Fed tightening cycle eventually tipping the U.S. into recession.

The spread between the 2-year and 10-year U.S. Treasury note yields hit the widest since 1981 at -110.80 basis points in early trade, a deeper inversion than in March during the U.S. regional banking crisis. The gap was last at -108.30 bp.

This has sparked discussion in the market about what this means for the economy and why it's happening. Moomoo Learn is here to help you understand.

[Investing Hacks] Does US Treasury Yield Inversion Always Predict Economic Recession?

Regarding the recent extreme level of US Treasury yield curve inversion, the market believes it may reflect expectations of deflation rather than rising recession risks.

Since July of last year, US Treasury yields have been declining, but recent economic data shows some resilience in the US economy, such as higher-than-expected Q1 GDP. While we cannot conclude that an economic recession won't happen, we cannot exclude the possibility either.

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