Yield Curve Inverts, A Blip or is Recession on Horizon?
In what could be a signal of an economic downturn and rate-cutting, the yield curve for Treasuries inverted for the first time since the Great Recession. The gap between three-month yield and 10-year yield disappeared last week, with short-term debt paying more than long-term debt.
A surge of buying drove yield on the 10-year Treasury down to 2.43% from more than 3.20% late last year. The three-month yield was 0.03 percentage points higher than the 10-year yield. This flip is largely considered by economists as a reliable predictor of U.S. recessions, which they think could ensue in 12 to 18 months. The 10-year yield still remains above the two-year yield of 2.31%.
The rise in demand for the safety of government bonds followed the Fed’s decision to hold interest rates steady last week amidst lowered growth projections. Traders viewed those events as a sign that money policymakers expect a cycle of easing. A cut by the end of 2020 and a one-in-two chance of a reduction this year were priced into the bond market.
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- ◦Economy