Bond market flips, leading to inverted yield curve. What that means.

  • The yield curve inverted this week when yields on 2-year notes rose above the ones on 10-year notes.
  • Yield curve inversion has been a strong predictor recession is coming, Fed research shows.
  • Every U.S. recession in the past 60 years was preceded by an inverted yield curve, it said.

Nowhere in financial markets has the world seemed more upside down than in the bond market this year.  

First, usually, when stock prices drop, Treasury bond prices rise as investors flee risky assets to safe government-backed securities. But with soaring inflation and the Federal Reserve late in trying to contain it, bond prices have tumbled with stocks, killing investors holding the traditional, moderate risk 60% stock,40% bond portfolio. High inflation erodes bond returns, making them less attractive. 

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