The US government bond yield curve has become inverted in recent days. Ten-year bonds offer a lower percentage yield than two-year or three-year bonds. In such cases, an economic recession usually followed.
Exception that proves the rule
However, according to some experts, we may be witnessing an exception that proves the rule. “We don’t see any signs of a recession on the horizon in the near term,” Gargi Chaudhuri, an investment strategist at BlackRock, the largest global asset management firm, told Reuters. “While I don’t want to simply say that the situation is different this time, I see many factors that are different from when yield curve inversions have occurred in the past,” she added.
Signals from Fed
The current inversion of the US government bond yield curve is largely artificial. These include significantly hawkish signals from the Federal Reserve. These are causing a growing conviction among investors that the Fed will continue and possibly raise interest rates further, but this may only be short-lived. Therefore, short-term bonds now carry a higher yield than ten-year bonds. “We still see room for long-term rates to move higher as well,” Chaudhuri added.