Dow down 400 points as S&P 500 heads for worst week since collapse of Silicon Valley Bank

Posted by author September 6, 2024 Jobs

It’s looking increasingly likely that the 2s/10s Treasury yield curve will uninvert on Friday, marking the end of a 546-session stretch where the bond market was turned on its head, according to Dow Jones Market Data.

With roughly an hour left until the day’s final Treasury prices arrive, the 10-year Treasury note yield was 4 basis points higher than its 2-year counterpart. If these levels hold through 3 p.m. Eastern time, it would mark the first time that this portion of the yield curve has finished the day in positive territory in more than two years, the longest stretch on record according to data going back to 1977.

The yield on the 30-year bond has been higher than its 2-year counterpart since July.

Typically, bonds with further-out maturity dates command higher yields. This is because investors demand higher returns to compensate for the additional risk of locking up their money for a longer term. But in the Treasury market, this isn’t always the case.

Instead, sometimes, the yield curve becomes inverted, and short-term yields move higher than their longer-term counterparts. A number of factors can contribute to this dynamic, but the most important takeaway for investors is that an inverted yield curve has historically been a reliable indicator of a recession ahead.

But it isn’t until the difference between the two yields flips back into positive territory that trouble is truly imminent for the economy, and perhaps for the stock market as well, as MarketWatch’s Joy Wiltermuth explained earlier this week.

The spread between the 2-year and 20-year notes has flirted with positive territory a few times recently. But on each occasion, the move failed to hold through the close.