The bond market is flashing a big neon caution sign.
Yields on 2-year US Treasury bonds dipped below the yield on the US 10-year bond Wednesday morning. It was the first time the 10-year yield was below the 2-year yield since 2007 — just before the Great Recession. Both were hovering around 1.62%.
In another worrisome sign, the yield on the 30-Year US Treasury fell to a record low Wednesday of about 2.06%.
This is significant. When shorter-term rates are higher than longer-term bond yields, that is known as an inverted yield curve. The 3-month US Treasury already inverted versus the 10-year this spring.
Yield curve inversions have often preceded recessions and are a sign of just how nervous investors are about the immediate outlook for the economy. They are demanding higher rates for short-term loans, which is not normal.
Typically, investors expect to get paid a higher rate of return when they are lending money for a longer period of time, because the risks are higher.