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Bond Yields Rise as Yield Curve Inversion Sends Worrying Recession Signals

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U.S. Treasury yields moved mostly higher on Thursday as earnings from major banks kicked off and traders continued to evaluate the likelihood of a more aggressive Federal Reserve.

The 2-year Treasury yield, which is more sensitive to monetary policy changes than its longer-term counterparts, dipped marginally lowers to 3.138% after rising earlier in the session.

The yield on the benchmark 10-year Treasury note rose 5 basis points to 2.959%, while the yield on the 30-year Treasury bond traded 4 basis points higher to 3.112%. Yields move inversely to prices, and a basis point is equal to 0.01%.

Meanwhile, the inversion between the 2-year and 10-year notes on Thursday notched another record dating back to 2000. Yield-curve inversions, or when shorter-term government bonds have higher yields than longer-term ones, are generally viewed by markets as harbingers of recession.

Thursday's June PPI report offered further clues into inflation and showed wholesale prices rise 11.3% over the year-ago period with the surge in energy prices.

The U.S. Federal Reserve could deploy a massive 100 basis point interest rate hike to combat inflation, some analysts predict. Inflation in the U.S. is at its highest in 40 years. Atlanta Fed President Raphael Bostic, when asked by reporters about the likelihood of the hike, replied, "Everything is in play."

Investment firm Invesco in a note this week said that it expects inflation to recede as the year progresses. Ben Gutteridge, director of model portfolio services at the firm, told CNBC on Thursday that the stock market reaction to the latest inflation print has been "relatively benign, which could mean that markets are looking further ahead to the future, at least in part on the back of commodity prices slightly weakening... markets are maybe thinking that we've reached peak inflation."

On Wednesday, Bank of America economists said in a note that they expect the U.S. to enter a "mild recession" this year. They noted that incoming data points to slowing momentum for the economy and that inflation seems to be hindering consumer spending.

— CNBC's Matt Clinch contributed to this report.

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