The 2/10 Spread Inverts

For the first time in more than a decade, the yield on two-year Treasuries is greater than the yield on ten-year Treasuries. As someone who has written a lot about the 2/10 Spread, it’s odd to see it in the headlines today. It even made Drudge.

I also find myself in the unusual spot telling people to relax a bit. A 2/10 inversion is not a good thing, but it’s not exactly a tripwire. Historically, inversions precede recessions by as long as two years. We had an inversion in the late 1990s when the economy was doing very well.

What it means is that people are getting paid to take on more risk. As a result, people won’t take on more risk. That can be bad for the market since it lives off the back of risk-takers.

People are also concerned about the stock market falling. But the stock market has been falling, just quietly. Going back to early 2018, many sectors of the market haven’t done that well. Finance, Energy, Materials have all done poorly. It just didn’t get a lot of attention. The “high beta” sector is in a technical correction.