Selling of short-dated Treasuries narrowed the gap between two- and 10-year yields to its tightest since early 2020 on Tuesday, as traders bet that rapid-fire rate hikes would hurt the U.S. economy over the longer term.

Bond markets have been increasingly sounding the alarm as the Federal Reserve signals a willingness to go hard and fast on tightening to curb inflation, just as the Ukraine crisis and leaping oil prices have raised risks to the growth outlook.

Longer-dated yields falling below shorter ones indicate a lack of faith in future growth and ten-year yields falling beneath 2-year rates is regarded as a harbinger of recession.

Two-year yields rose as far as 8.2 basis points (bps) to a nearly three-year peak of 2.4190% in the Asia session.

Ten-year yields were steady and last sat at 2.4704%, a gap of just over five bps, the narrowest since March 2020.

“An increasingly aggressive Fed tightening into decelerating growth with a stagflationary backdrop is a recipe for investors to think recession, and sooner rather than later,” said John Briggs, a strategist at NatWest Markets.

Thirty-year yields, at 2.5571% have already dropped beneath five-year yields, at 2.5787% as front-end Fed hike expectations have surged.

Fed funds futures are priced for a 4/5 chance of a 50-bp rate hike in May and see the benchmark rate more than 200 bps higher by year end.

“We would reasonably expect 2Y/10Y and 2Y/5Y segments to invert in the coming quarters as more hikes get delivered in this cycle,” said Eugene Leow, senior rates strategist at DBS Bank in Singapore.

“When the hike cycle is done, 2-year yields might well be the highest compared to the other tenors.”

For the month, the selling has been astonishing.

Through March, the two-year yield is up 97 bps and on course for its sharpest monthly rise since May 1984. The 10-year yield is up 65 basis points.