Some analysts attributed the short-end underperformance to demand for riskier assets as global trade tensions eased following this weekend’s tariff truce between U.S. President Donald Trump and China’s Xi Jinping. Others pinned it to modestly higher expectations for Fed hikes next year after the summit between the two leaders. Either way, the five-year is faring better because investors anticipate the end of the central bank’s hiking path beyond next year.
Curve flattening over the past two years has signaled investors’ concern that rising interest rates against a backdrop of slowing global growth could harm the U.S. economy. Inversion — where yields at the short end of the curve rise above those at the long end — has been a reliable indicator of recessions.
Emphasis mine.