(CNBC) – The U.S. bond market just flashed what could be its biggest warning yet of a coming recession, and it is not alone. The spread between the 2-year Treasury yield and the 10-year yield flipped so that the 2-year was higher than the benchmark 10-year yield for the first time since June 2007. Other parts of the curve have already inverted, but traditionally the 2-year to 10-year spread is the most widely watched by market players. The U.S. 30-year bond yield fell to a record low early Wednesday, touching 2.015% for the first time ever, dropping through its prior record of 2.08%. Yields across Europe fell, and the German
10-year bund touched a new low of negative 0.65%. The long end of the curve, or the 10-year and 30-year yields, are reflecting fears about the global economy, so, therefore, rates have been declining. But the shorter end, the 2-year has not been declining as quickly, since it reflects the Fed funds rate, which is still above 2%. An inverted yield curve has been a reliable recession indicator, but it does not always precede an economic contraction and the length of time before a recession occurs has varied. According to Credit Suisse, the average length of time since the late 1990s for a recession to occur after inversion was 22 months. CONTINUE
