According to the news, since July 2022, the two-year yield on US Treasury notes has been lower than the yield on the 10-year notes for the first time, as traders bet that the Federal Reserve will significantly ease monetary policy due to concerns about economic recession - and as a result, lowered the policy-sensitive short-term yields. On Monday, the two-year yield on US Treasury notes fell 23 basis points to 3.65%, and the 10-year yield was 3.68%. In comparison, in March 2023, the two-year yield was 111 basis points higher than the 10-year yield, marking the deepest inversion since the early 1980s.

This is an important milestone for the US Treasury market. For most of the time since the US Federal Reserve began raising interest rates 11 times (totaling more than 5 percentage points) in March 2022, short-term yields on US Treasuries have been higher than long-term yields, creating an inverted yield curve.

Last Friday, the US Labor Department reported that non-farm payrolls increased by only 0.114 million in July, well below economists' expectations, and the unemployment rate unexpectedly rose to 4.3%. The Sam rule was triggered again - when the three-month moving average of the US unemployment rate rises 0.5 percentage points or more above its 12-month low, it usually signals the early stages of an economic downturn in the US.

At the same time, the unexpected drop in the ISM PMI released earlier last week also drove recessionary trading. In July, the US manufacturing PMI fell to 46.8, lower than the expected 49 and June's 48.5. In addition, weaker-than-expected growth in US June durable goods orders and wholesale inventories, as well as higher-than-expected initial jobless claims, all contributed to recession concerns.

After a series of recent weak economic data, bond traders are very worried about the US economy, and they are now considering whether the Federal Reserve will take emergency rate cuts to stop the economic downturn. After a slew of weak US economic data, market expectations for a rate cut by the Federal Reserve have risen. After the data was released, the CME FedWatch Tool showed that traders currently believe there is a 98.5% chance that the Federal Reserve will cut rates by 50 basis points in September, up from 31% before the data was released. Traders have fully digested expectations of a rate cut of at least 25 basis points in September and now expect cumulative rate cuts of about 120 basis points by the end of the year.

Investors are betting that the Federal Reserve and other central banks will be more aggressive in cutting rates, as concerns grow that the slowdown in US economic growth is faster than expected a few weeks ago. This has fueled one of the strongest rebounds in the bond market since the US banking crisis erupted in March 2023.

James Athey, portfolio manager of Marlborough Investment Management, said that the reversal of the yield curve may mean that the US economy has entered a recession. "History tells us that when the curve returns to a positive slope, you are already in a recession. The signal has become increasingly worrying during this period."