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US Treasury Yield Remains Inverted After Solid Jobs Number: Will The Economy Tip Into A Recession?

The U.S. Treasury Yield Curve remained inverted as the employment situation report for July was reported, announcing 528,000 jobs added to the economy.

Although unemployment is back to pre-pandemic lows of 3.5%, an inverted yield curve is a leading indicator that the economy is heading for a recession.

On Tuesday, stocks began to trade mixed as the two-year treasury yield was at 3.185%, while the ten-year treasury yield was at 2.84%. The yield curve remains inverted, as inflation concerns continue and the federal reserve policy remains unchanged.

When the short-term yield rises higher than the long-term yields, bond investors expect a long-term decline in interest rates, typically accompanied by a recession.

See Also: Jobs Report: Pandemic Jobs Lost Restored, Flipping Recession Script And Fueling Inflation, Fed Fears

Former U.S. Secretary of the Treasury Larry Summers told MSNBC that in order to prioritize inflation, an unemployment rate of 5% would be neutral. The odds of a recession occurring within the next year or two is higher than 75%.

According to Bloomberg, swap contracts are now indicating a higher probability of a 75 bps rate hike to the Federal Reserve Benchmark, instead of 50 bps.

Image: U.S. Department of the Treasury

 

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