The two-year Treasury yield hit its
highest level in nearly a decade Monday morning, leaving investors questioning
what this could signal for America's economy in the longer term.
The short-term Treasury yield rose to 2.386
percent on Monday morning — the highest level on record since August of 2008.
Meanwhile, the 10-year Treasury yield also rose
to a three-week high at 2.86 percent. Yields move inversely to bond prices.
The move came as the U.S. and Russia avoided
any direct conflict in Syria following airstrikes by Western nations on
Saturday morning. But, the sell-off in bonds left some investors feeling
nervous that it could spell trouble for the U.S. economy. Every time the
short-term yield comes closer to the 10-year — in what market participants
describe as "flattening of the yield curve" — there are worries that
an economic recession could be on the horizon. This is because higher
short-term yields suggest that inflation and interest rates are expected to
remain low for a while.
A flattening of the yield curve has preceded financial crises in the
past, including the dotcom bust and the financial crisis of 2008. However, some
market experts believe that this is no longer the best way to assess risk of a
recession. Saker Nusseibeh, chief executive at Hermes Investment Management,
told CNBC's "Squawk Box Europe" that he expects a reversal of the
"We should expect a steepening of the
yield curve. We do not see any indications of the U.S. economy entering
anything like a possible recession," he said.
A steepening of the yield curve traditionally
means that market players expect higher inflation and thus higher interest
rates from the U.S. central bank. It also indicates an expectation of a
"What we do see is clear indication of a
stronger-than-anticipated U.S. economy … And possibly a sharper steepening than
people thought might happen," Nusseibeh added.
In late March, revised data showed a growth
rate of 2.9 percent in the last quarter of 2017 for the U.S. The U.S.
unemployment rate is currently at a 17-year low.
Federal Reserve Chairman Jerome Powell said
in February that the bank would prevent the economy from overheating by raising
rates at a gradual pace. Markets are expecting at least three rate hikes in
2018, with the next one taking place at the June meeting.
here for the original article form CNBC.