Inversion of the 2-10-year bond yield curve for the first time since April

The spread between two-year and ten-year Treasury bond yields narrowed to -2.02, its lowest level since May 5, before returning to positive territory at 4.1 around 0950 GMT.

This gap or “spread” is watched very closely by market observers, with some considering it a good barometer of the risks of a recession occurring.

A rise in short-term yields may reflect fears about the short-term outlook. An inversion of the yield curve (short rates above long rates) has often preceded recessions in the past.

The rise in consumer prices in the United States accelerated in May, to reach 8.6% over one year, its highest level since December 1981 which could encourage the Federal Reserve to press ahead with the rise in its interest rate in the coming months.

Investors fear that too abrupt a tightening of the institution’s monetary policy will lead to a sharp slowdown in economic growth, or even a recession.

“Inflation was thought to have peaked. Friday’s numbers showed that was not the case,” said Mitul Kotecha, strategist at TD Securities.

“There is a realization that the Fed is going to have to do more and step on the accelerator even more aggressively,” he added. “There is a risk that this will push the US and global economy into recession.”

According to CME Group’s FedWatch Barometer, investors estimate a nearly 25% chance that the Fed will hike 75 basis points at its meeting on Wednesday.

(Yoruk Bahceli report, with Tom Westbrook, French version Laetitia Volga, edited by Sophie Louet)

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