The U.S. yield curve measured by the gap between five and 30-year government bond yields inverted on Monday for the first time since early 2006 as a sell-off in the market resumed, with short-dated bond yields jumping to their highest since 2019.
While parts of the yield curve, namely five to 10 and three to 10 years, inverted last week, the slide of the gap between five- and 30-year maturities of the biggest bond market in the world into negative territory raised concerns the U.S. central bank's hawkish approach to tackling inflation might hurt growth.
"That is exactly what the bond market is pricing: that the Fed's policy response is going to put the brakes on economic growth sharply," said Peter Chatwell, head of multi-asset strategy at Mizuho Bank in London.
The spread between 30- and five-year U.S. Treasury yields fell to as low as minus 7 basis points (bps), moving below zero for the first time since February 2006, according to Refinitiv data.
The spread has collapsed from a positive 53 bps at the start of this month.
In the overnight index swaps (OIS) market, the yield curve between two and 10-year swap rates inverted for the first time since late 2019 and last stood at minus 4 bps, according to Refinitiv data.
The OIS market also reflects traders' rate expectations and therefore has a yield curve that plots rates across maturities. The five-30 year OIS curve had already inverted earlier in March and various parts of the forwards curve have also inverted.
With bond yields continuing to rise after a jump on Friday, the two-year Treasury yield, which is sensitive to interest rate expectations, rose as high as 2.41%, its highest since early 2019, and was up around 6 bps on the day at 2.35% by 1048 GMT.
Ten-year bond yields pushed above the 2.5% marker to 2.55% , hitting their highest since April 2019, but were last up around one bp on the day at 2.49%.
The gap between five- and 10-year yields fell to around minus 12 bps, moving further into inverted territory .
Francois Savary, CIO at Swiss wealth management firm Prime Partners, said 2.5% had been his target for the 10-year yield.
"We could now get an extension to 2.75%," he said.
"It's not time yet for adding duration. Until we get a top in inflation, you need to be careful on bonds."
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