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NEW YORK (Reuters) - Global stocks fell on Wednesday, plagued by a flattening yield curve that sparked concerns about an economic slowdown in the United States and weakening expectations of a lasting U.S.-China trade truce, while the dollar steadied.
Brace yourselves everybody, a recession is coming! Sometime in the next, uh, two years. Or less. Or more.
Earlier this week, interest rates on 3-year Treasury notes turned higher than 5-year rates for the first time since the dawn of the previous U.S. recession, back in 2007. This is called an inversion of the yield curve, or at least a small piece of the curve. The Big One will be when 2-year and 10-year Treasury rates swap places, and bond traders are doing their darnedest to make it happen soon, as Robert Burgess points out. That particular inversion has preceded every recession since the late 1970s. The thing is, as Bloomberg economist Michael McDonough notes in this chart, the yield curve is kind of a loooong leading indicator:
A yield curve is a line that plots the interest rates, at a set point in time, of bonds having equal credit quality but differing maturity dates. The most frequently reported yield curve compares the three-month, two-year, five-year, 10-year and 30-year U.S. Treasury debt. This yield curve is used as a benchmark for other debt in the market, such as mortgage rates or bank lending rates, and it is used to predict changes in economic output and growth.