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Treasury Yields Invert as Traders Weigh U.S. Recession Risk

Source: NYSE

The bond market on Monday continued to flash warning signs that the U.S. economy could be headed for a recession after U.S. Treasury yields inverted again.

The yield on the 2-year Treasury yield inched marginally lower to 2.424, while the benchmark 10-year Treasury note rose about 4 basis points to 2.412%. The yield on the 5-year government bond moved 1 basis point higher to 2.56% and the 30-year Treasury bond climbed about 5 basis points to 2.473%. Yields move inversely to prices and 1 basis point is equal to 0.01%.

2-year and 10-year yields, which form the main part of the yield curve watched by traders, inverted once again on Monday. Those Treasury yields flipped on Thursday for the first time since 2019 and did so again on Friday, following the release of closely watched jobs data.

"The yield curve inversion continues to be the focus of investors, triggering conversations around the timing of the next recession," Nationwide chief investment of research Mark Hackett said in a note. "Historically, the yield curve inversion has meant that the fuse is lit for a recession. But the timing of a recession is impossible to predict at this stage."

"While it is way too early to become defensive, shifting incrementally to a more conservative strategy makes sense. In this environment, quality trumps momentum-based growth," he added.

Although the inversion in Treasury yields historically precedes a recession, economists have indicated that it is not a guarantee of an economic downturn. 5-year and 30-year Treasury yields also remained inverted on Monday, after flipping for the first time since 2006 a week ago.

Meanwhile, investor focus this week will be on minutes from the latest Fed meeting, due out at 2 p.m. ET on Wednesday.

ING strategists said in a note on Monday that they expected the Fed to announce 50 basis point rate hikes at the May, June and July meetings.

"This should continue to push yields up across the board, but also invert the curve further," they said.

Investors also continue to monitor the situation in Ukraine. Russia's chief negotiator Vladimir Medinsky said draft peace treaty talks will resume on Monday, underlining that the Kremlin's position on Crimea and Donbas remains unchanged.

Ukrainian President Volodymyr Zelenskyy has accused Russian forces of committing genocide, saying Ukrainian people were being "destroyed and exterminated."

CNBC's Jesse Pound and Sam Meredith contributed to this market report.

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