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Yield Curve Inversion Reaches New Extremes

Unusual relationship between Treasury yields reflects investors’ bets on easing inflation and future rate cuts

In 2021, officials thought that high inflation would be temporary. But a year later, it was still near a four-decade high. WSJ’s Jon Hilsenrath explains three factors that have kept inflation up for longer than expected. Illustration: Jacob Reynolds

Yields on longer-term U.S. Treasurys have fallen further below those on short-term bonds than at any time in decades, a sign that investors think the Federal Reserve is close to winning its inflation battle regardless of the cost to economic activity.

A scenario in which short-term yields exceed long-term yields is known on Wall Street as an inverted yield curve and is often seen as a red flag that a recession is looming.

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