Financial markets may have just predicted a recession

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For most of its existence, the yield curve on US Treasuries — an upward-sloping line on a graph that describes the amount paid out by US government bonds — has been an extremely prosaic thing, of interest only to traders in financial markets. Very occasionally, however, it changes shape and when it does so it becomes of interest to everyone, because it is one of the things economists use to predict an impending recession.

The normal rule is that the investors who lend money to the US government (by buying the Treasury bonds) expect it to pay more to borrow for longer, just like a mortgage provider will typically offer a higher fixed rate on a ten-year mortgage than it will on a two-year mortgage. Very rarely, however, this rule will be flipped, as the near future becomes less predictable and so investors shy away from…

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