The yield of three-month tax authorities rose above the rate of 10-year Treasuries for the first time since 2007 – a shift that spooked Wall Street and sent the Dow plunging. Investors have been back in stock after sales at the end of 2018.
The floating interest rate curve, or the difference between short-term and long-term interest rates, has worried investors for several months. A narrowing spread is usually seen as a sign that long-term confidence in the economy is declining, which may signal a possible economic contraction.
Friday's flip is added to an already rough start for Dow, which is now about 1
The index stumbled on the opening bubble of poor production data from Germany, which also spelled problems for the country's bond market. The yield on Germany's reference 10-year government bond fell below zero for the first time since October 2016.
All of this news brings Wall Street's ongoing concerns about slowing global growth.
White House's financial advisor Larry Kudlow told CNBC last year that the spread between three-month and 10-year government bonds was important to look at.
Dow was not the only major US index to see losses on Friday, S & P 500 dropped more than 1.5% at noon, and Nasdaq was also down at about 2%
Michael Darda, chief economist and market strategist at MKM Partners , said in a note that investors should wait for weekly and monthly averages to show an inversion before reading it as a "powerful recession signal. "
And he noted that on average, setbacks occur 12 months after an inversion – not immediately.