Why markets are taking notice of an inverted yield curve

As if there were not enough for markets to fret about. US inflationary pressure and rising costs are eroding corporate margins, offsetting any benefit of falling unemployment rates and rising wages. Overall, the data generally remains mixed, but when the spread between the two-year and ten-year yield curve inverted downward sloping in April, money managers began to take notice.

An inverted US yield curve, which occurs when long-term yields fall below those offered by shorter maturities, has often served as a leading recession indicator, with a lag of about four to eight quarters. Prior to April this year, the curve last inverted in 2019, amid slowing foreign growth and...