The gulf between short- and long-term US borrowing costs has reached its widest point since 1981, in a sign investors expect the Federal Reserve to stay the course in its battle to tame inflation, even as recession worries mount.
The two-year Treasury yield traded on Wednesday at 4.2 per cent, while the 10-year yield stood at 3.4 per cent, bringing the difference between the two to 0.84 percentage points. The pattern, known as a yield curve “inversion”, has preceded every US economic downturn of the past 50 years.
The deepening of the inversion comes after a report last week showing the US economy continued adding jobs at a robust pace in November and an important survey indicating activity in the vast services sector is continuing to grow rapidly.