The Treasury selloff sent a widely-watched part of the U.S. yield curve to its first inversion in 16 years. Shorter maturities have been selling off faster than longer-dated peers in response to expectations of how central banks will try to combat inflation.
U.S. five-year yields climbed as much as 12 basis points to 2.67%, rising above those on 30-year bonds. The spread between five- and 10-year Treasuries inverted earlier this month.
While the latest inversion has traditionally been seen as a recession signal, that may not be the case now because Fed policy has been so loose, according to Mohit Kumar, a managing director at Jefferies in London.
“This time is different as the Fed is playing catch up from a position that is way behind the curve,” he said. “Thus, we do not see current Fed policies driving a recession, but we would see some economic slowdown as policies move into restrictive territory.”
This article was provided by Bloomberg News.