• The annual rate of US consumer price inflation reached 9.1 percent last month.
• Yields increase when prices decline. Since last week, the two-year yield has exceeded that of the benchmark 10-year note.
• Inverted yield curve has preceded each recession over the past 50 years.

US stocks: A carefully monitored indicator of recession risk on Treasury markets reached its highest level in more than two decades on Wednesday, as hotter-than-expected inflation data fueled investor wagers that the Federal Reserve will swiftly hike interest rates.

The yield on two-year Treasury notes, which is most sensitive to forecasts for short-term interest rates, increased by 0.1 percentage points to 3.14 percent after statistics revealed that the annual rate of US consumer price inflation reached 9.1 percent last month. Yields increase when prices decline.

Likewise, the yield on the benchmark 10-year note decreased by 0.04 percentage points to 2.913%. Since last week, the two-year yield has exceeded the 10-year yield, a phenomenon known as an inverted yield curve that has preceded each recession over the past 50 years.

The move on Wednesday caused the spread between the two to reach its most inverted level since 2000.

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The unexpectedly high inflation rate, which economists had predicted would be 8.8%, raised pressure on the Federal Reserve to hike interest rates by at least 0.75 percentage points at its next policy meeting later this month.

Stocks on Wall Street initially declined in response to the inflation statistics, but eventually recovered their losses. In mid-afternoon trade, the S&P 500 was unchanged while the Nasdaq Composite rose 0.3%.

Following the scorching inflation news, the euro temporarily fell below parity with the dollar for the first time in two decades on currency markets. The dollar index, which measures the US dollar against six other currencies, fell 0.2% but stayed at a 20-year high.