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An Inversion Just Happened, as It Did Before 9 Recessions

Treasury yields inverted Wednesday
By Newser Editors and Wire Services
Posted Aug 14, 2019 8:46 AM CDT
Updated Aug 14, 2019 3:05 PM CDT
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Yields on 2-year and 10-year Treasury notes inverted early Wednesday, Aug. 14, a market phenomenon that shows investors want more in return for short-term government bonds than they are for long-term bonds.   (AP Photo/Richard Drew)

(Newser) – An economic alarm bell has sounded in the US, sending warnings of a possible recession ahead—and sending the Dow plunging 800 points by the end of the day. Yields on 2-year and 10-year Treasury notes inverted early Wednesday, a market phenomenon that shows investors want more in return for short-term government bonds than for long-term bonds. It's an indication that investors have lost faith in the soundness of the US economy, the AP reports. What appeared to be a slight thaw in trade relations between the US and China that had sent markets sharply higher Tuesday was quickly forgotten, with the Dow opening down 400 points. By 12:30pm ET it was down nearly 650 points; a half-hour later it had plunged 737 points, or 2.6%, reports CNBC. By end of day it was down 800, the S&P 500 was down 86, and the Nasdaq was down 242, per Marketwatch.

CNBC notes that bank stocks like Bank of America and Citigroup have been the big losers today, down 5% and 5.2% respectively, as "it gets tougher for [them] to make a profit lending money in such an environment." The yield on the benchmark 10-year Treasury note hit 1.622%, falling below the yield of a 2-year, which was 1.634%. The last inversion of this part of the yield curve was in December 2005, two years before a recession brought on by the financial crisis hit. An inversion like the one taking place Wednesday has preceded the last nine recessions dating back to 1955. When a recession might hit, if it does, is a little hazier. Months or even years have passed after an inversion takes place, and before economists can connect the two. Marketwatch notes Wednesday was the Dow's worst day this year.

(Read more yield curve stories.)

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