Yield-curve inversion grows with the 5Y-30Y hitting its widest point since 2000

Melpomenem

The yield curve inversion continues to pick up steam as the spread between the U.S. 30-year Treasury yield (US30Y) and the U.S. 5-year Treasury yield (US5Y) has now hit its widest point since 2000.

Also widening is the spread between the U.S. 10-year Treasury yield (US10Y) and the U.S. 2-year Treasury yield (US2Y).

On Thursday the spread between the 30Y and 5Y is -0.17 basis points, and the spread between the 10Y and 2Y is -0.40 basis points. See chart below:

A yield curve inversion refers to a condition where longer-term bond yields are lower than shorter duration yields. Moreover, during normal market conditions, longer-term yields have a habit of being higher than shorter-term yields.

Historically speaking, extended inversion periods lend themselves to foreshadow future market downturns. Dating back to 2000, there are two key examples: In 2006-2007, the yield curve inverted for an extended period of time and acted as a predecessor to the Great Recession of 2008-2009. Additionally, similar conditions also took place in 2000, presaging the 2001-2003 market meltdown.

Yields have been on a tear in 2022 and in particular the shorter end of the curve has seen the greatest increase. Year-to-date the 2Y and 5Y have increased by 300 basis points and 232 basis points. At the same time the 10Y and 30Y have jumped by 191 basis points and 157 basis points.

Furthermore, as the yield curve inverts, Treasury exchange traded funds that have their price action tied to government bonds come into focus.

Treasury ETFs: (NYSEARCA:AGG), (NASDAQ:BND), (NASDAQ:TLT), (NASDAQ:IEI), (IEF), (SHY), (GOVT), (SHV), (BIL), (VGSH), (VGIT), (SCHO), (SCHR), (SPTL), (TLH), and (VGLT).

In broader news, the stock market reversed some of its early losses and now trades mixed as yields pare gains following an unexpected rise in headline retail sales and a drop in claims and the Philly Fed.