The yield curve of 2-10 year US Treasuries was inverted by more than 100 basis points, breaking the record for more than 40 years

It is reported that for the first time since 1981, the yield of US two-year treasury bond is more than 100 basis points higher than that of 10-year treasury bond. The yield of two-year treasury bond was as high as 4.9974% in the session, more than 100 basis points higher than the 10-year yield. The last time the two-year yield was lower than the 10-year yield was in July last year. Fed Chairman Powell’s speech suggested that the terminal policy interest rate may need to be higher than previously expected. The interest rate swap contract price shows that the probability of raising interest rate by 50 basis points in March is slightly higher than that by 25 basis points.

Interpretation of this information:

The message reports on the yield spread between US two-year and 10-year treasury bonds. For the first time since 1981, the yield of two-year bonds is over 100 basis points higher than the yield of 10-year bonds. Specifically, the yield on two-year bonds rose to 4.9974% during a session, whereas the 10-year yield remained below that rate. This yield inversion is historically significant because it often signals an economic slowdown or recession. The last time the two-year yield was lower than the 10-year yield was in July 2019.

The Chairman of the Federal Reserve, Jerome Powell, recently hinted at raising the terminal policy interest rate more than previously anticipated. This decision could raise bond yields further and support future actions that may address inflation. Moreover, the interest rate swap contract price indicates an increased possibility of a 50-basis-point interest rate increase in March, but a 25-basis-point increase is still expected.

In summary, the message portrays an unusual yield curve where two-year bonds yield more than 10-year bonds, a phenomenon that typically precedes an economic slowdown or contraction. Additionally, Fed Chair Powell’s suggestion of raising interest rates above previous expectations is noteworthy for potential future changes in monetary policy that could impact the bond market. The three keywords that summarize the message are “yield inversion,” “Federal Reserve policy,” and “interest rate hike,” each representing an essential aspect of the article.