Treasury yield curve deepening inversion stokes growth fears


U.S. Treasury yields fell further on Wednesday as investors dived into long-term government paper, deepening the inversion of the yield curve’s slope.

What are Treasurys doing?

The 10-year Treasury note yield












TMUBMUSD10Y, -0.75%










  fell 3.6 basis point to 1.454%, a day after the benchmark rate hit its lowest level since July 2016. The 2-year note rate












TMUBMUSD02Y, -1.82%










  was down 3.2 basis points to 1.496%, while the 30-year bond yield












TMUBMUSD30Y, -1.07%










  tumbled 4.1 basis points to 1.926%.

Key measures of the yield curve’s slope remain inverted on Wednesday. The spread between the 2-year note yield and the 10-year note yield stood at a negative 4 basis points. A lasting inversion of the yield curve’s slope can indicate fears that a recession will arrive, though the timing between the date of the inversion and an economic downturn can vary.

What’s driving Treasurys?

Geopolitical jitters drew the attention of traders who piled into safe haven assets like U.S. government paper. U.K. Prime Minister Boris Johnson announced he would ask the Queen to extend the suspension of Parliament until Oct. 14, two weeks before the twice-delayed deadline when the U.K. must leave the European union. This would make it difficult for opponents of a no-deal Brexit to prevent the U.K. from exiting the EU without a trade deal in hand. A no-deal Brexit would likely slow economic growth not only in Britain but the eurozone also.

The 10-year U.K. government bond yield












TMBMKGB-10Y, -13.43%










  fell 5.9 basis points to 0.446%.

See: Pound plunges as Boris Johnson’s bid to suspend Parliament raises no-deal Brexit fears

On the other hand, fears of a potential snap election in Italy have waned, following reports that talks between the anti-establishment 5-Star Movement and the center-left Democratic Party had made progress. The budding coalition agreed to install Giuseppe Conte as Prime Minister of Italy, who had been previously opposed by the Democratic Party. Both sides have until Wednesday evening to hammer out a deal.

The 10-year Italian government bond yield












TMBMKIT-10Y, -8.17%










 8.6 basis points to 1.05%.

Read: Italy outperforms Europe stocks on coalition hopes

The flight to safe-haven assets also meant that Wednesday’s U.S. Treasury auction was met by good demand.

In the afternoon, a $41 billion auction for 5-year Treasury notes “stopped through” by 1.1 basis points, a sign of strong appetite for the debt available for sale. A stop-through indicates when the highest yield the Treasury sold in the auction is below the highest yield expected when the auction began – the “when issued” level. Debt sales can influence trading for the outstanding market as investors make room for the fresh supply.

What did market participants’ say?

“Any time the 10-year Treasury yield is below 1.50%, it’s a meaningful economic signal,” said Marvin Loh, senior global markets strategist for State Street.

“Whether or not these markets are overbought from a technical perspective, the fact is that a bid” for long-term Treasurys remain, said Loh.



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