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Treasury yields saw their most extreme inversion since 1981, back when unemployment soared even higher than it did in the Great Financial Crisis

Paul Volcker
Paul Volcker, former Fed Chair 1979 to 1987.Bettmann / Getty Images
  • The 10-year US Treasury yield fell 0.78 percentage point below the two-year yield last week.

  • That's the largest inversion since 1981, which marked the early stages of a deep recession that saw the unemployment rate reach 10.8%.

  • Comparatively, during the Great Financial Crisis, unemployment reached 10%.

A portion of the US yield curve recently saw its deepest inversion since 1981, representing a louder warning of an impending recession.

The 10-year US Treasury yield fell 0.78 percentage point below the two-year yield last week, the widest gap in 41 years, the Wall Street Journal pointed out.

The last time the curve was this inverted, then-Fed Chair Paul Volcker was waging war on inflation and the US fell into a deep recession that sent the unemployment rate to 10.8%. Comparatively, during the Great Financial Crisis, unemployment peaked at 10%.

On Tuesday, the the 10-year yield was 0.74 percentage point below the two-year yield. The inversion signals that investors expect the Federal Reserve to slash rates eventually to boost an economy faltering under the weight of an aggressive tightening cycle.

The Fed's hawkish campaign is showing some signs of working, though policymakers have said it will continue. Earlier this month, the Labor Department released better-than-expected CPI data, reinforcing the notion that inflation is beginning to ease.

Meanwhile, stocks have climbed lately. Despite a 17% loss on the year, the S&P 500 gained 6% since the day before the November 10 inflation reading.

On Wednesday, Fed Chair Jerome Powell will speak at an event hosted by the Brookings Institution, ahead of the Fed's next policy meeting on December 13-14, when the central bank is widely expected to lift rates by 50 basis points.

Read the original article on Business Insider