NEW YORK (Reuters) – When the U.S. Federal Reserve cut interest rates last month for the first time in more than a decade, it signaled that further reductions in borrowing costs might not be needed. Bond markets vehemently disagree.
Sliding bond yields and the inversion of a key part of the U.S. yield curve on Wednesday for the first time in 12 years show that bond investors have a far gloomier outlook for the U.S. and global economies than the U.S. central bank.
Rates - Market - Day - Reckoning - Tom
“The rates market rarely lies and globally it looks like it’s expecting a day of reckoning,” said Tom di Galoma, a managing director at Seaport Global Holdings in New York.
Fears are also rising the Fed may not only be behind the curve in cutting rates, but that central banks may be running out of ammunition to stimulate growth as countries offset each other’s attempts to boost growth with looser fiscal policy.
Data - Pressures - US-China - Trade - War
Worsening economic data, weak inflationary pressures, the escalating U.S.-China trade war and intensifying tensions between protesters in Hong Kong and the Chinese government have boosted demand for safe-haven debt, sending many European government bond yields deeper into negative territory while the longest-dated U.S. Treasury yields have fallen to record lows.
The inversion of key parts of the Treasury yield curve, in which investors in short-term holdings get paid more than those in long-term ones, has historically been a reliable indicator of a coming recession.
Wednesday - Yield - US - Treasury - Note
On Wednesday, the yield on the U.S. 10-year Treasury note tipped 2.1 basis points below 2-year Treasury yields , the first time this spread has been negative since 2007, according to Refinitiv data.
The inversion rattled investors already worried that a U.S.-China trade war might trigger a global recession and kill off a decade-long bull market on Wall Street. Major U.S. stock indexes were down about 2%.
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