A part of the Treasury yield curve has just seen its steepest inversion since 2000 as bond markets flash recession warnings

• The two-year Treasury yield blew past the 30-year yield Thursday as inflation data causes a further inversion.
• The spread between the two bonds marks the steepest inversion in nearly 22 years.

The yield on the two-year Treasury bond pushed further past the 30-year yield to mark the deepest inversion between the two notes in 22 years on Thursday, as fresh inflation data, bets on rate hikes, and recession fears widen the gap.

The two-year yield on Thursday jumped six basis points, to 3.85%. That's 38 basis points above the 30-year Treasury yield of about 3.47%, and is the most inverted the two bonds have been since 2000. The yield on the two-year note surged Tuesday following August inflation data that showed price increases slowed, but not as much as markets had hoped for.

An inverted yield curve is a closely watched indicator of a potential recession in the near- to medium-term. The inversion essentially flips conventional thinking that long term debt carries more risk than short-term obligations. The current difference between the two-year and 30-year yields is the widest gap among US benchmark rates.

The Federal Reserve is expected to take strong steps to address inflation at its next policy meeting, with Wall Street widely expecting a 75 basis point hike following this week's release of August inflation data. Some have said the central bank could push rates as high as 9% to truly tame inflation.

"A deepening of the yield curve perfectly reflects all the doom and gloom that is spreading across Wall Street. It appears that inflation is proving to be more troubling than many thought and the risk of a severe recession is growing," said Edward Moya, senior Market analyst at OANDA.

"Traders are now expecting much aggressive tightening by the Fed, and that is the latest catalyst for the widening of the yield curve inversion. Until markets are convinced they see the end in sight for Fed tightening, the yield curve will stay inverted."