In the bond market, yield can be thought of as what an investor demands to be paid for loaning Uncle Sam money.
It sounds wonky, but such action has historically been a warning signal that the bond market sees potentially tougher economic times ahead.
Still, they’re sharp enough that they’re worth watching, particularly when other markets seem to be exhibiting such calm.
One of the strangest things happening in the bond market is that a Treasury maturing in 30 years is now paying a lower yield than one maturing in 20 years.
This anomaly, called an “inversion,” is in a corner of the bond market that’s not as closely followed as others.
When investors sell bonds, the price falls and the yield rises.
Shorter-term yields have been rising on expectations that the Federal Reserve may hike its key overnight rate next year for the first time since 2018.
Longer-term yields, meanwhile, move more on expectations for future economic growth and inflation than on imminent moves by the Fed.
A big reason is that yields for longer-term Treasurys have been dropping after adjusting for inflation.
That could be an indication that bond investors are lowering their expectations for the economy’s future growth and how high interest rates will end up far in the future, as the U.S.