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A key part of the U.S. Treasury yield curve steepened on Wednesday as investors evaluated whether the Federal Reserve could send the economy into a recession as it aggressively hikes rate to tackle inflation.

The yield curve between two-year and 10-year notes briefly inverted to minus 0.03 of a basis point on Tuesday, before bouncing back to four basis points on Wednesday.

An inversion of this part of the yield curve is seen as a reliable indicator that a recession will follow in one to two years.

Short-term Treasury yields have jumped on expectations that the Fed will aggressively hike rates to tackle the fastest inflation in 40 years, while growth concerns are weighing on the long-end.

Fed funds futures traders expect the Fed’s benchmark rate to rise to 2.60% by February, compared to 0.33% today.

Analysts are divided on whether the inversion of the two-year, 10-year yield curve this time might be different. Some argue that the longer-dated yields are being artificially held down by the Fed’s $8.9 trillion bond holdings, which makes the inversion a less reliable signal than in the past.

Barclays analysts Anshul Pradhan and Samuel Earl said in a report on Tuesday, however, that they find this argument “unsatisfactory.”

“Investors are willing to accept a low term premium when they are worried about downside risks to growth, suggesting that the term premium also contains information about the outlook,” they said.

Benchmark 10-year note yields were 2.40% on Wednesday. They reached 2.56% on Monday, which was the highest since May 2019. Two-year yields were 2.36%, down from 2.45% on Tuesday, the highest since March 2019.

Western sanctions imposed on Russia as a result of its invasion of Ukraine have added uncertainty to the global growth outlook and caused a spike commodity prices, which has amplified already high inflation.

Russia, which calls its actions in Ukraine a “special operation,” bombarded a city in northern Ukraine on Wednesday, a day after promising to scale down operations there, and Kyiv and its Western allies dismissed a pullback near the capital as a ploy to regroup by invaders taking heavy losses.

Data on Wednesday showed that U.S. private employers maintained a strong pace of hiring in March, adding 455,000 jobs last month.

Gross domestic product increased at a 6.9% annualized rate, the Commerce Department also said in its third estimate of fourth-quarter GDP growth. That was revised slightly down from the 7.0% pace estimated in February.

The U.S. government jobs report for February on Friday will be closely scrutinized for signs of wage inflation, in addition to the headline jobs figure. Data on Thursday that shows the prices paid by consumers for goods and services is also in focus.

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