Keep The Yield Curve Inversion In Perspective

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Signs of a global economic slowdown roiled the markets on Wednesday as shares dived and investors fled to bonds with such intensity that short-term yields rose above longer-term ones for the first time since the crisis of a decade ago - an inversion many market-watchers saw as a strong signal of an approaching recession. -Chinese trade tensions and economic growth concerns.

The 30-year Treasury yield fell as much as six basis points to 1.9623 per cent in Asia trading on Thursday, after sliding 15 basis points the day before.

The two-year/10-year Treasury yield curve inverted for the first time in 12 years on Wednesday.

Losses were more modest in Shanghai and Hong Kong and shares in London and NY were on course to bounce back on Thursday.

Global stocks crumbled and oil prices extended a punishing sell-off on Thursday as an inverted USA bond yield curve intensified fears about a world recession.

Global stock markets are in for a rocky ride on Thursday after recession fears caused the three main United States bourses (^GSPC, ^DJI, ^IXIC) to close down 3% overnight. The S&P 500 index dropped almost 3 percent as the market erased all of its gains from a rally the day before. Unfortunately, this will only continue to worsen should the US-China trade war continue to escalate. As has the bid in the U.S. 30-year Treasury, which is now trading below 2% - a new record low, with the hunt for (quality) bonds, with any positive "real" yield rolling on like a juggernaut. South Korea and India were also up. Weak economic data from Germany and China added to recent signals of a global slowdown.

Former Federal Reserve Chair Janet Yellen cautioned that concerns about the inverted yield curve might not be correct and that a recession likely is not in the near-term future.

Bond prices soared. The yield on the 10-year Treasury sank to 1.58% from 1.68% Tuesday, a big move.

As TheStreet reported yesterday, although yields "subsequently rose to 1.592% for the 2-year Treasury and 1.596% for the 10-year note, putting the curve's slope back into positive territory", it was not enough to prevent "a big sell-off in USA stocks, with the Dow Jones Industrial Average falling some 800 points".

It was the worst day for the major indexes since December 2018.

China on Wednesday posted its worst growth for industrial production in 17 years. The stock market, which fell 800 points today, looks pretty distressed too.

The realignment of Treasury bond yield curve goes against investor logic. Lower yields are a sign that U.S. monetary policy is too tight and the market sees a higher prospect of recession.

The dollar recovered from early weakness but a gauge of world equity performance edged lower on Thursday as concerns about global growth offset investor optimism over a surge in USA retail sales last month and strong Walmart earnings. Drops like this are typical for stocks, and they're the price investors have had to pay for better long-term returns than bonds historically. An inverted curve suggests that bond investors expect growth to slow so much that the Federal Reserve will soon feel compelled to slash short-term rates to try to support the economy.

Macy's plunged 13.2 percent, the sharpest loss in the S&P 500, after it slashed its profit forecast for the year.

Prices to us have not gone up, and in some cases, have come down.

Worldwide benchmark Brent crude LCOc1 fell $1.50 to $57.98 a barrel.

The yen too pulled back 0.3%, having firmed for eight of the past ten sessions against the dollar. The dollar index .DXY rose 0.11%, with the euro EURO= down 0.24% to $1.1111.



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