The bond market just sent a surefire recession signal. Don’t panic.

The weakening job market and expectations of a Federal Reserve rate cut later this month helped set off a reliable signal of a recession in the bond market.

Two plots along the roughly $28 trillion Treasury market yield curve turned positive on Friday after a record stretch in an “inverted” relationship.

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Specifically, the 10-year yield BX:TUBMUSD10Y ended Friday at 3.710%, while the 2-year yield BX:TUBMUSD02Y ended at 3.651% – the first time the benchmark rate finished above its much shorter counterpart since 1 July 2022, according to Dow Jones Market Data.

While it sounds complicated, it probably isn’t a cause for panic. In large part, it comes down to how Wall Street investors have positioned themselves ahead of the Fed’s anticipated pivot to cutting interest rates, which ideally starts before it’s too late for the US economy.

See: Powell says “the time has come” for rate cuts

Bond yields have fallen dramatically since late August, when Fed Chairman Jerome Powell said the first rate cut in four years was likely imminent. Investors now widely expect the central bank to cut interest rates at its September 17-18 policy meeting.

Movements along the Treasury yield curve have been closely watched by Wall Street, as rate cuts have often been used by the Fed in the past as part of a bailout to prop up a struggling economy.

“Back in the day, I’d say, ‘There’s a pretty good chance it’s going to happen,'” said John Flahive, head of fixed income at BNY Wealth, of the movements along the yield curve that have signaled looming recessions in the past .

But Flahive no longer sees the yield curve as having the same predictive power, in part because the bond market has become much larger and more globally interconnected than ever before.

In addition, major central banks over the past 15 years have used their balance sheets in a significant way to support markets and the economy, while other policy factors appear to be contributing to the “false signals” in other recession barometers.

“I think history rhymes, but it doesn’t necessarily repeat itself,” Flahive told MarketWatch on Friday. He also remains in the soft landing camp and believes rate cuts this cycle will be more gradual than the sharp declines seen in past emergencies.

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However, the potential pace of the Fed’s rate cut remains an open topic of debate, especially with investors blind to the growing chances of an economic contraction.

US stocks fell sharply on Friday, with the Dow Jones Industrial Average DJIA and the S&P 500 SPX posting their biggest losses since the regional banking crisis began in March 2023. The Nasdaq Composite COMP posted its biggest weekly loss since January 2022.

“In our view, today’s jobs data increased the urgency for the Fed to get rates back to the vicinity of ‘neutral,'” Aditya Bhave, U.S. economist at BofA Global, wrote in a note to clients on Friday.

The US economy added 142,000 jobs in August, which was less than expected, although the unemployment rate fell to 4.2%.

“Therefore, we are changing our call to the Fed,” Bhave wrote. “We now expect the Fed to cut by 25 (basis points) per meeting for the next five meetings through March 2025. That would take the policy rate to 4%, which is around the upper end of most estimates neutral rates. .”

On an intraday basis, Thursday was the last time the 10-year Treasury yield hovered above the 2-year rate, but it failed to hold that level until the close.

Also, the countdown to a recession typically begins only after the 10-year yield has closed above its 2-year counterpart. By Friday, the two yields had reversed for a record 546 trading days, according to Dow Jones Market Data.

Read on: Fed’s Waller backs start of ‘careful’ rate cuts in September, says open to more ‘forced’ moves down the road

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