Investors increasingly anticipate that in September the Federal Reserve (Fed) will initiate interest rate cuts. After yields on the 10-year U.S. Treasury note peaked at 4.70% in April, yields dropped below 4% in August.
This is considered a generally favorable trend resulting in positive total returns for bond investors, but it also exacerbates a phenomenon dating back nearly two years – the inverted yield curve.T
his is an unusual situation where yields on certain shorter-term Treasury securities exceed those of longer-term securities. An inverted curve environment emerged in 2022 and has persisted since, though the inversion has flattened in 2024. An inverted yield curve contrasts with investor expectations – namely, to generate higher income by investing in longer-term debt.
Source: Treasury Yields Invert as Investors Weigh Risk of Recession | U.S. Bank
