Tuesday, December 27, 2005

Treasury yield curve inverts

But this time it's different™:

The yield on the benchmark 10-year Treasury fell below that of two-year notes early Tuesday, inverting the yield curve for the first time since December 2000.

At 6:23 am ET. the 10-year note yielded 4.393 percent while the two-year note yielded 4.396 percent.

The inversion of the yield curve is rare because investors tend to demand higher yields on longer-dated bonds to compensate for the risk of higher inflation later.

"This clearly suggests we are very close to the end of the tightening cycle...and is not an indication of a recession," said Michael Rottmann, strategist at Hypovereinsbank.


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