Yet another recession warning just flashed red - a Treasury 'yield curve' just inverted for the first time since 2007

trader surprised shocked

Reuters / Neil Hall

  • The three-month to 10-year US Treasuries yield curve has inverted for the first time since 2007.
  • US Treasuries yield curves are key indicators that credit markets fear recession.
  • The Dow tumbled 400 points as yield curve inversion sparked growth concerns.

A keenly watched measure of market sentiment on recession has just indicated that recession is increasingly on the cards.

10-year Treasury yields declined Friday, continuing from a more than one-year low which has led to the three-month and 10-year yield curve inverting, which Bloomberg saysis the first time since 2007, suggesting credit markets are fearful of US growth declining.Advertisement

It follows a Federal Reserve decision not to hike interest rates Wednesday which highlighted a the possibility of slower US growth in the coming year forecasting just one hike through 2021.

A flat or negative yield curve suggests investors believe keeping your money in short-term bonds is more uncertain than bonds that pay off much later. If the long-term horizon looks riskier than the short-term one, it's a sign something's amiss in the economy.

The same happened with three and five-year spreads for the first time in 11 years in December. Concerns about global growth slowing and higher interest rates, coupled with simmering trade-war tensions, are thought to be behind the inversions.

Whether that means a recession is likely in the next few years depends on numerous factors, but it's a stark sign of things to come from a usually emphatic bellwether.Advertisement

Rebecca Ungarino contributed to this report.