Is a US Recession Coming? Yield Curve Sounds Loudest Warning Since 2007

"We could be in a significantly lower-rate environment for a while" given that central banks are poised to ease, he told Bloomberg Television on Monday.

Columbia Threadneedle's Ed Al-Hussainy also sees the potential for a further leg down in the 10-year benchmark, but says Federal Reserve rate cuts could help the yield curve snap back from its inversion.

"Potentially now the curve starts to steepen because the Fed is being pressured by a combination of data and obviously downside risks in trade to be more forceful," the senior strategist said in a phone interview.

Heavy buying in fed funds futures contracts in the days since the Fed last week delivered its quarter-point reduction has driven the market to price in another reduction in September, and then some.

Al-Hussainy expects investors to turn to even more aggressive positioning for rate cuts. He says the signal from the curve suggests money markets should be pricing in a higher probability of the Fed's policy rate going to zero in the coming year.

"There's a huge disconnect now," he said. "You don't need to do a lot of mental gymnastics to get to the Fed having to cut 200 basis points to put off a recession."

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