Tuesday's Market Minute: Watch Treasuries

The Treasury yield curve has been warning about a recession, but market watchers say it’s about to send an even stronger message as the 10-year yield looks set to fall below the 2-year note yield. Various parts of the yield curve have been inverted, but the traditionally watched 2-year to 10-year spread looks set to invert any day now, with the curve at its flattest level in 12 years. Historically, when the 10-Year yield falls below the 2-Year yield, a recession may be the outcome over the next year. While not always the case, it can be a warning signal that volatility and a fall in equities may be coming.

Stocks have had a choppy August with the benchmark S&P 500 down over 3% so far this month. Despite a healthy job market, rising wages, and a strong consumer domestically, geopolitical risks and a global economic slowdown are creeping into the U.S. economy. The 2-10 Yield Curve inversion may be inevitable in the near-term, but the recession outcome can be nixed or pushed out to 2020 if we see economic conditions pick up into the latter half of 2019, which is historically strong.

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