This Closely Monitored Recession Sign Is Looking Extremely GrimIt hasn't been this severe since the 1980s.

ByAmanda Breen•Jan 10, 2023

By now, most Americans have feltinflation's squeeze and wondered if thelooming recessionwill come to pass.

Now, one of the most reliable economic indicators suggests it will. The difference between the yield on two- and 10-yeartreasury notesis the largest it's been in roughly 40 years, according to a DataTrek note reported byInsider.

Known as an inverted treasury yield, the ominous sign graphs yields across a range of maturities. An inverted yield curve shows that short-term debt instruments have higher yields than long-term instruments of the same credit risk profile — meaning that long-term interest rates are less than short-term interest rates, perInvestopedia.

The two-year yield has exceeded that of the 10-year for nearly a year now, but as of Monday, the two-year was trading at a yield of 4.241% compared to a yield of 3.578% on the 10-year — the most severe inversion since the 1980s, per Insider.

The Fed is expected toraise interest ratesanother three-quarters of a percentage point in 2023, setting a 17-year high of 5-5.25% from its current 4.25-4.5% level,Bankratereported.

But the Fed's attempt to slow downinflationisn't necessarily good news for all borrowers.

Laura Veldkamp, a professor of finance and economics at Columbia University Business School, toldCNBCthat some households will be reassured by price stabilization while others with variable rate debt, like credit card debt, will be hurt by it.

Amanda Breen

Entrepreneur Staff

Features Writer

Amanda Breen is a features writer at Entrepreneur.com. She is a graduate of Barnard College and received an MFA in writing at Columbia University, where she was a news fellow for the School of the Arts.