The "yield curve" is inverting (gasp!) - should investors freak out?

The

Powell said last week that the benchmark interest rate was "just below" the neutral level - meaning one that would neither speed up nor slow down economic growth.

The dollar has been under pressure since Federal Reserve Chairman Jerome Powell said last Wednesday that USA interest rates were nearing neutral levels, which markets interpreted as signalling a slowdown in the pace of rate hikes.

Gundlach said the Fed will need to be especially careful in its choice of words when they meet this month to deliver on their promised rate hike. During an economic downturn, which is one reason why the yield curve inversion is spooking the market.

- CNBC's Sam Meredith and Ryan Browne contributed to this article.

Longer-term bonds offer investors a higher yield (or return) than shorter ones, reflecting the risk of tying up their money for years or decades.

US stocks slumped almost three percent on Tuesday on some of the same growth concerns influencing bond investors as well as on doubts China and the United States would resolve their trade spat.

Brent crude oil settled at $62.08 per barrel, or jumped up 0.63 percent.

In an "economic letter" published by the San Francisco office of the U.S. Federal Reserve (Fed), Michael D. Bauer and Thomas M. Mertens summarize the implications of an inversion succinctly: "Every U.S. recession in the past 60 years was preceded by a negative term spread, that is, an inverted yield curve".

There have also been false positives in the past, where the yield curve has inverted but no recession has followed, such as in 1966. A survey of supply managers indicated manufacturing output would grow, but the same survey indicated weaker prices; meanwhile, a decline in construction spending led some analysts to mark down their forecast for gross domestic product growth.

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That message, of a Fed committed to a strategy that would not be shaped by short-term data, was echoed this week by Fed vice chair Randal Quarles. "We have described in all the communications tools a path that is pretty clear", Quarles said.

Yield-curve inversions typically occur months - or even years - before a recession.

Whatever the situation with the Fed and the USA markets, emerging markets may be effected even more than the US economy.

Weakening global growth, trade-war fears, higher interest rates, and wariness over the extent of Federal Reserve tightening are weighing on markets. Stock and bond markets will be closed on Wednesday.

On Monday, the difference between the two-year and 10-year Treasury yields dropped to just 0.15 percent, its lowest level since prior to the last USA recession.

A typical yield curve includes much higher interest rates for maturities further into the future.

Bianco research noted today "There has not been one instance where the 2-year 5-year spread inverts and the 3-month 10-year spread didn't".

The outlook for US growth, by contrast, he said remained strong. The Fed has increased the rate three times this year, with another expected in December, to prevent inflation from accelerating.

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