Federal Reserve Chairman Jerome Powell’s assertion this week that the U.S. economy remains strong is facing a stern test from the bond market, which showed a classic recession sign Friday morning.
Short-term government fixed income yields are now ahead of the longer part of the curve, delivering a strong recession indication that hasn’t happened since 2007.
The spread, or yield curve, between the 3-month and 10-year Treasury notes just broke the longest streak ever of being above 10 basis points, or 0.1 percentage point. The two maturities were last below that level in September 2007, a run of 3,009 trading days, according to Bespoke Investment Group.
The two maturities inverted Friday morning, a near-perfect sign that a recession is coming. An inverted yield curve does not mean a recession is imminent but that one is likely over the next year or so.