Investors are worried about a key economic indicator that could signal a future recession.
Those following the treasury market are keeping an eye on the yield curve. Last week, the curve inverted for the first time since the summer of 2019. That's not good. A yield curve inversion means the interest rate paid on short-term debt (like a 2-year yield) is more than the interest rate paid on a long-term debt (like a 10-year yield). Economist Hank Lewis, at Lone Star College, says there's a risk that investors might get spooked.
“Some investors may dump their stock. Some investors may start shifting their money away from buying corporate bonds towards buying government bonds due to lower risk,” Lewis said.
Investors fear the Federal Reserve's shrinking its balance sheet to fight off inflation might hurt economic growth.
“The biggest problem though is that investors do not like uncertainty, and mixed signals lead to uncertainty,” Lewis explained. “Uncertainty typically leads to a drop in spending which means the economy starts heading down the business cycle."
Luckily on Thursday, the Treasury 10-year yield hit a three-year high.