Economic security

2 key recession signals in the bond markets are nearing crisis levels

Two key bond trends are nearing levels last seen during the financial crisis, signalling a recession could be on the cards. 

The spread between the 2-year and 10-year US treasury bonds, known as the yield curve, has narrowed to just 17 basis points, its lowest level since June 2007. Further declines would result in an inverted yield curve, with the 2-year bond trading higher than the 10-year bond. That would imply traders believe there is more uncertainty in the two-year timeframe than there is over a 10-year timeframe — a counterintuitive position which suggests the near-term is very uncertain indeed. An inverted yield curve has preceded every recession in the past 60 years.

Meanwhile, European 10-year bond yields are nearing negative territory. This suggests investors are so desperate to hold safe, government-backed debt that they're willing to sacrifice any return and even stomach a loss to own it.