Markets have a way of blowing this type of consensus out of the water.
The phrase “yield curve inversion” may not be up there with “Taylor Swift” or “Kim Kardashian,” but it has by now cropped up in the media so often that people are Googling it all of a sudden:
Markets are by now taking this “yield curve inversion” for granted. It’s going to happen, it’s just a matter of time, they say, and whether it’ll be next week or at the next rate hike is not crucial.
This idea that the yield curve must invert is based on the principle that the Fed is raising its target range for the federal funds rate, an overnight rate, and that these higher rates are filtering into short-term Treasury yields, such as the one-month yield, the three-month yield, or the two-year yield. Meanwhile, the 10-year and 30-year yields are doomed to be stuck. And when the two-year yield gets pushed above the 10-year yield, that’s the moment of “inversion.”