US recession fears increase
A narrower spread between the 3-month and 10-year yields indicates increased market expectations of a recession.
New York: The spread between the three-month Treasury bill yield and the 10-year note yield narrowed to a fresh 12-year low on Friday morning, less than 1 basis point above parity, following the Federal Reserve's decision to cease tightening monetary policy and as soft German manufacturing data added to fears about the slowdown in global growth.
A narrower spread between the 3-month and 10-year yields indicates increased market expectations of a recession. The 3-month and 10-year spread is the Fed's preferred measure of the Treasury yield curve as it shows the strongest historical correlation between curve inversion and a forthcoming recession.
The spread flattened to August 2007 lows on Thursday, then flattened to fresh lows on Friday. It was last at 0.76 basis point and could continue to flatten to inversion if the 10-year yield continues its downward trajectory. The yield curve inverts when spreads fall below zero basis points.
The 10-year yield broke below the psychologically significant 2.5 percent level, and was last at 2.471 per cent, its lowest since January 2018. The fall in the 10-year also weighed on the spread between 2- and 10-year yields , another significant measure of the yield curve. That spread was last at 10.5 basis points.