The bond market is doing something it hasn’t done since 2007 — and could be signaling a recession

The yield curve is flatter than it has ever been since before the financial crisis.

If it gets any worse, there'll be lots of talk of a possible recession, says Craig Johnson, chief market technician at Piper Jaffray. He told CNBC's "Trading Nation" on Friday why this could be a warning sign for markets.

  • The spread between the 2-year and 10-year bond yields is hovering above minor support at 43 basis points. That's its lowest levels since 2007.
  • Yield curve talk, and worries over a curve inversion, will crop up in market headlines more frequently as we approach the June Federal Open Market Committee meeting. The decision-making committee's next meeting is June 12-13.
  • A 25-basis-point hike in June, a near certainty among market participants, would leave the spread between the 2-year and 10-year yield at less than 25 basis points.
  • If the yield curve flattens, or even inverts, expect to see additional selling pressure on the financial sector. The banks, regional banks especially, will be laggards of the sector.

Bottom line: More Fed rate hikes will flatten the yield curve even more, putting strain on financials stocks.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Sara Eisen

Sara Eisen joined CNBC in December 2013 as a correspondent, focusing on the global consumer. She is co-anchor of the 10AM ET hour of CNBC's "Squawk on the Street" (M-F, 9AM-11AM ET), broadcast from Post 9 at the New York Stock Exchange.

In March 2018, Eisen was named co-anchor of CNBC's "Power Lunch" (M-F, 1PM-3PM ET), which broadcasts from CNBC Global Headquarters in Englewood Cliffs, N.J.

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