The Longest Inverted Yield Curve in U.S. History Continues to Stress Credit Unions (2024)

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The Longest Inverted Yield Curve in U.S. History Continues to Stress Credit Unions? ›

For our credit union clients, however, the inverted yield curve has already taken a significant toll. First, the higher interest rates have slowed the mortgage and mortgage refinancing market that had been at the heart of much of the credit union growth over the last decade.

The 10-2 Year Treasury Yield Spread (I:102YTYS) has been inverted since July 7, 2022, marking the longest period of inversion in U.S. history at over two years, surpassing the previous record of 624 days set in 1978.

The yield curve has been inverted since July 2022, but history has shown that any economic fallout following a yield curve inversion doesn't happen immediately.

One common way to measure this is by looking at the difference (or spread) between the 10-year and two-year Treasury bond yields. Right now, this spread is below zero. Historically, an inverted yield curve is thought to signal a potential recession within the next 12 to 24 months.

Historically, an inverted yield curve has often preceded economic recessions. It indicates that investors expect lower future growth and inflation, prompting a shift towards safer investments.

Typically, the spread between the 10-year and two-year Treasury notes is used to gauge this inversion. Before this week, the yield curve had been inverted for a staggering 783 consecutive days, the longest such period in U.S. history.

The event – commonly dubbed a yield curve inversion – was largely viewed as a signal the U.S. economy would likely slip into recession in the near future. An inverted yield curve occurs when short-term yields on U.S. Treasurys exceed long-term yields on Treasurys.

Inverted Yield Curve

According to the current yield spread, the yield curve is now inverted.

Prior to the 2020 recession, the yield curve was only inverted for 141 days, which was much shorter than the average 248 days preceding the previous five U.S. recessions. For instance, the yield curve was inverted for 235 days between the inversion in January 2006 and the start of the 2007-2009 recession.

now suppose market interest rates rise from 3% to 4%, as the table below illustrates. If you sell the 3% bond, it will be competing with new treasury bonds that offer a 4% coupon rate. The price of the 3% bond may be more likely to fall. The yield to maturity, however, will rise as the price falls.

What is the inverted yield curve in 2024? ›

As of June 14, 2024, the yield for a ten-year U.S. government bond was 4.2 percent, while the yield for a two-year bond was 4.67 percent. This represents an inverted yield curve, whereby bonds of longer maturities provide a lower yield, reflecting investors' expectations for a decline in long-term interest rates.

A normal yield curve shows low yields for shorter-maturity bonds increasing for bonds with a longer maturity. The curve slopes upward. This indicates that yields on longer-term bonds continue to rise, responding to periods of economic expansion.

The part of the Treasury yield curve that plots two-year and 10-year yields has been continuously inverted - meaning that short-term bonds yield more than longer ones - since early July 2022. That exceeds a record 624 day inversion in 1978, Deutsche Bank said in a note on Thursday.

One notable change is that the shape of the Treasury yield curve, which has been in an inverted state since 2022. This unusual occurrence represents an environment where yields on shorter-term Treasuries are higher than those for longer-term Treasuries.

Because investors are risking their money for longer periods of time, they are rewarded with higher payouts. An inverted curve eliminates the risk premium for long-term investments, giving investors better returns with short-term investments.

Partner at Olden Lane. Last week, without much fanfare, the United States Treasury market made history for the longest continuous inversion of the US 2s10s ever. The yield curve has now been continuously inverted since July 5, 2022 – passing the 624-day inversion from August 1978, which had held the record.

Inverted Yield Curve. A yield curve inverts when long-term interest rates drop below short-term rates, indicating that investors are moving money away from short-term bonds and into long-term ones. This suggests that the market as a whole is becoming more pessimistic about the economic prospects for the near future.

It reflects rates anywhere from two years out to a decade. Longer-term CDs, such as three- and five-year ones, may be based on rates in the shorter end of the belly. The back end refers to longer-dated bonds with maturity dates of 10 years or more.