Sign up now for FREE unlimited access to Reuters.com Register NEW YORK, March 29 (Reuters) – A section of the US Treasury Department’s yield curve reversed on Tuesday for the first time since September 2019, reflecting market concerns that the US Federal Reserve could lead the economy to recession as it battles rising inflation. For a short time, the yield on the two-year government bond was higher than that of the 10-year benchmark bond. This part of the curve is seen by many as a credible signal that a recession could come in the next year or two. The 2-year, 10-year spread fell briefly to minus 0.03 of the base unit, before recovering above zero in the 5 base units, according to Refinitiv. Sign up now for FREE unlimited access to Reuters.com Register While the brief reversal in August and early September 2019 was followed by a recession in 2020, no one predicted business closures and financial collapse due to the spread of COVID-19. Investors are now worried that the Federal Reserve will slow growth as it aggressively raises interest rates to fight rising inflation, with price pressures rising at the fastest pace in 40 years. “The two-and-a-half moves reflect that the market is getting nervous that the Fed may not be successful in promoting a soft landing,” said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. Western sanctions imposed on Russia after its invasion of Ukraine have created new instability in commodity prices, adding to already high inflation. Fed futures traders expect the Fed reference rate to rise to 2.60% by February, up from 0.33% today. FEDWATCH Some analysts say the Treasury Department’s yield curve has been distorted by the Fed’s massive bond markets, which are holding back long-term yields relative to those with lower yields. Short-term and mid-term yields have skyrocketed as traders price more and more interest rate hikes. Another part of the yield curve also monitored by the Fed as a recession indicator remains far from reversal. This is the quarterly, 10-year part of the curve, which is currently at 184 basis points. Either way, the lag from a reversal of the two, 10 year segment of the curve to a recession is usually relatively large, which means that an economic downturn is not necessarily a concern right now. “The time lag between a reversal and a recession tends to be, call it anywhere between 12 and 24 months. Six months was the smallest and 24 months the longest, so it’s not really something that can be applied to the average person.” said Art Hogan, head of market strategy at National Securities in New York. Analysts, meanwhile, say the US Federal Reserve could use a roll-off of huge $ 8.9 trillion bonds to help re-roll the yield curve if it worries about the slope and its implications. The Fed is expected to start lowering its balance sheet in the coming months. Sign up now for FREE unlimited access to Reuters.com Register Report by Chuck Mikolajczak and Karen Brettell. Additional references by John McCrank. Editing by Alden Bentley and Nick Zieminski Our role models: The Thomson Reuters Trust Principles.