On December 14, 2010, a trader issued a quote signal on the S&P 500 stock index futures trading floor of the CME Group in Chicago.
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The relationship between 10-year and 2-year Treasury yields briefly normalized on Wednesday, reversing classic recession indicators.
Benchmark 10-year Treasury yields edged higher than the 2-year note for the first time since June 2022 after economic news showed a sharp drop in job openings and dovish comments from Atlanta Fed President Raphael Bostic.
An inverted yield curve (i.e., higher recent yields) has been a signal of most recessions since World War II. The reason why short-term yields are higher than long-term yields is essentially the result of traders pricing in slower growth in the future.
However, the normalization of the curve does not necessarily herald better times ahead. The fact that the curve typically recovers before a recession hits means the U.S. may still face some tough economic troubles ahead.
The Labor Department reported that job openings unexpectedly fell below 7.7 million this month, leaving supply and demand almost flat since the COVID-19 crisis. Job vacancies once outnumbered the labor supply by more than 2 to 1, exacerbating the highest level of inflation in more than 40 years.
Meanwhile, Atlanta Fed President Raphael Bostic made comments around the same time the job openings report fell, suggesting he was ready to start even if inflation was above the central bank’s 2% target. Cut interest rates.
Lower interest rates are seen as a driving force for economic growth; the Federal Reserve has maintained its benchmark interest rate at the highest level in 23 years since July 2023.
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