Is a yield curve inversion a foreboding sign for mortgage rates? Does it really signal a recession? Economists weigh in. For a moment this week, the bond market flashed a signal that some associate with impending recessions. Home buyers need not worry just yet, according to economists.
On Friday, the 2-year rate, which ended higher for the week, also traded above the 10-year yield for the second time this week — inverting the spread by as much as 10 basis points.
The 2-year Treasury note’s yield TMUBMUSD20Y, 2.593% also briefly rose above the yield on the 10-year Treasury note on Tuesday, in what is called an inversion of the yield curve, a relatively rare occurrence.
Typically, long-term bonds like the 10-year Treasury TMUBMUSD10Y, 2.385% carry longer interest rates, or yields, than short-term bonds.
Market experts note that while yield-curve inversions are strong economic indicators that can signal the risk of a potential recession, they don’t tell investors definitively when an economic downturn is likely to come.
As Barron’s noted, an inverted yield curve is a predictor of a recession only when it remains inverted for more than a week. What’s more, a 2018 paper from the Federal Reserve Bank of San Francisco noted that the time between the inversion and subsequent recession varied between 6 and 24 months.
“So when 2-year yields rise above 10-year yields, market watchers can comfortably conclude just one thing: Investors expect interest rates and/or inflation to be higher in 2 years than in 10 years,” Barron’s noted...............
https://www.marketwatch.com/story/mortgages-are-complicated-instruments-should-home-buyers-be-worried-about-a-yield-curve-inversion-economists-say-keep-your-eyes-open-for-these-signals-11648824917?mod=home-page
