The spread between 2- and 10-year Treasury yields plunges to around minus 104.6 basis points, heading for a level not seen since Sept. 22, 1981.
One of the bond market’s most reliable gauges of impending U.S. recessions plunged further below zero into triple-digit negative territory on Tuesday after Federal Reserve Chairman Jerome Powell pointed to the need for higher interest rates and a possible reacceleration in the pace of hikes.The widely followed spread between 2- and 10-year Treasury yields plunged to minus 104.6 basis points during New York afternoon trading and headed for a level not seen since Sept.
Meanwhile, traders boosted the odds of a half-of-a-percentage point rate hike on March 22, to 70.5% from 31.4% a day ago, and saw a growing chance that the fed funds rate will end the year between 5.5% and 5.75% or higher, according to the CME FedWatch Tool. The 2s/10s spread first went below zero last April, only to un-invert again for a few months before dropping further into negative territory since June and July. It is just one of more than 40 Treasury-market spreads that were below zero as of Monday, but is regarded as one of the few with a reasonably reliable track record of predicting recessions, albeit with a one-year lag on average and at least one false signal in the past.
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