US yield inversion deepens, reigniting recession fears

August 28, 2019 08:58
A bond market indicator is stoking fears of a US recession as the economy faces turbulence amid a trade war. Photo: Reuters

The US yield curve inversion deepened on Tuesday to levels not seen since 2007, rekindling fears of a looming recession that spurred a sell-off on Wall Street and stoked even more safe-haven demand for government bonds, Reuters reports.

“As the curve inverts further, it has inspired more long-end buying,” Mike Lorizio, head of Treasuries trading at Manulife Asset Management in Boston, told Reuters.

The yield curve often inverts prior to a US recession.

The Treasury Department sold its latest two-year, fixed-rate note supply at a yield of 1.516 percent, which was the lowest at an auction of this maturity since September 2017.

On the open market, 10-year Treasury yields stood at 1.488 percent, down 5.60 basis points on the day. They reached a three-year low of 1.443 percent on Monday.

The yields on two-year notes were 1.531 percent, down 2.00 basis points. On Monday, they declined to 1.449 percent, the lowest since September 2017.

The spread on three-month T-bill rates over 10-year yields grew as wide as 52 basis points, a level not seen since March 2007, according to Refinitiv data.

The deepening curve inversion reflects investors’ nervousness about a recession and uncertainties over the trade conflict between China and the United States.

On the stock market, the Dow Jones Industrial Average closed down nearly 0.5 percent, while the S&P 500 index and the Nasdaq Composite shed more than 0.3 percent each.

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