For the first time since initial pandemic lockdowns in 2019, the 2- and 10-year Treasury yields inverted on Thursday, in a worrying sign that may signal a possible upcoming recession. This means that the 2-year bond note is now higher than the 10-year note, at 2.337 percent versus 2.331 percent.
The yield curve compares banks’ cost of money versus its potential lending and investing profits. An inversion signals that banks will likely struggle to make money, slow lending, and stagnate economic activity.
But while the yield inversion is considered a relatively reliable signal, recession often follows with a lag, and sometimes not at all. Still, it’s certainly not a good indicator.