The big news in the markets is that the yield spread between three-month and 10-year Treasuries fell below zero on Friday for the first time in more than a decade, creating what's known as an inverted yield curve. The 10-year Treasury note yield fell as low as 2.42 percent before closing at 2.45 percent, falling below the three-month T-bill yield at 2.455 percent.
The 3-month/10-year inverted curve is the most reliable signal of future recession, according to researchers at the San Francisco Fed. Inversions of that spread have preceded each of the past seven recessions, including the 2007-2009 contraction. They say it’s offered only two false positives — an inversion in late 1966 and a “very flat” curve in late 1998.
An inverted curve can be a source of concern for a variety of reasons. One reason is that short-term rates could be running high because overly tight monetary policy is slowing the economy. Or it could be that investor worries about future economic growth are stoking demand for safe, long-term Treasurys, pushing down long-term rates.
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