The spread between 2- and 10-year Treasury yields shrank to as little as minus 67 basis points on Wednesday, and was headed for its deepest inversion in more than 40 years. The inversion was being driven by a steep drop in the 10-year yield which fell 11 basis points to below 3.7% in New York afternoon trading. The 2y/10y spread is regard as one of the bond market’s most reliable gauges of an approaching U.S. recession, and a deeply negative inversion signals that the recession could be severe. The last time the spread has inverted by so much was on Feb. 18, 1982, when it went to minus 70.5 basis points.
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