Bond Market Signals Recession Concerns Amid Yield Curve Inversion

According to BlockBeats, on September 10, DataTrek co-founder Nicholas Colas highlighted that the shift in the long-term relationship between 2-year and 10-year U.S. Treasury yields was not the only recession warning from the bond market last Friday. The significant drop in the 2-year Treasury yield has pushed the spread between short-term notes and the federal funds rate to its most negative level in at least 50 years. Colas noted that during this period, the spread between these two short-term rates has only fallen below -1% three times, and each time, a recession began within a year. However, Colas does not believe this necessarily means a recession is imminent. He stated that a recession requires a catalyst to start, and so far, the U.S. has not experienced any events that could trigger such a severe economic slowdown. Instead, this inversion suggests that bond traders are increasingly worried that the Federal Reserve is not lowering borrowing costs in a timely manner amid a slowing labor market. In a report on Monday, Colas mentioned, 'The bond market is saying that the Federal Reserve is far behind the curve in cutting rates.'