Traders return to their desks in the new year with a familiar warning signal flashing even more strongly than before — the Treasury yield curve got even flatter, feeding the market's worst suspicions about the U.S. economy.
Market watchers noted a dramatic compression in what is arguably the most reliable indicator of recession — the gap between the 3-month and 10-year Treasury yields.
This spread hit a post-crisis low of just 18.6 basis points in early New York trading Wednesday, barely half the intraday peak it reached on Dec. 31. The gap has since pulled back toward its opening level for the day of around 24 basis points, but the narrowing trend is hard to ignore as U.S. economic data deteriorate and traders start pricing in the possibility of a Federal Reserve rate cut in 2020.
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