Former Federal Reserve Chair Janet Yellen said the markets may be wrong this time in trusting the yield curve inversion as a recession indicator.
"Historically, it has been a pretty good signal of recession, and I think that's when markets pay attention to it, but I would really urge that on this occasion it may be a less good signal," Yellen said on Fox Business Network. "The reason for that is there are a number of factors other than market expectations about the future path of interest rates that are pushing down long-term yields."
The yield on the benchmark 10-year Treasury note was at 1.623% on Wednesday, below the 2-year yield at 1.634%, causing the bond market's main yield curve to invert and send markets plummeting. The bond market phenomenon is historically a trusty signal of an eventual recession; however, Yellen said this time may be different.
When asked if the United States is headed into a recession, Yellen said: "I think the answer is most likely no. I think the U.S. economy has enough strength to avoid that, but the odds have clearly risen and they're higher than I'm frankly comfortable with."
Yellen is not the only other former Fed chair who is weighing in on lower yields. With more than $15 trillion of government bonds trading at negative interest rates worldwide, Former Federal Reserve Chairman Alan Greenspan said Tuesday that "there is no barrier" to negative yields in the U.S.
"There is international arbitrage going on in the bond market that is helping drive long-term Treasury yields lower," Greenspan said in a phone interview with Bloomberg. "There is no barrier for U.S. Treasury yields going below zero. Zero has no meaning, beside being a certain level."