U.S. Treasury yields fell sharply on Wednesday after a raft of weak economic data from China and Germany underlined a slowdown in global growth, offsetting hopes that U.S.-China trade talks were making progress.

The sharp rally in long-term government bonds briefly inverted a key measure of the yield curve’s slope for the first time since 2007.

How are Treasurys doing?

The 10-year Treasury note yield slipped 5.7 basis points to 1.623%, around its lowest levels since Oct. 2016. The 2-year note rate was down 4.7 basis points to 1.622%, while the 30-year bond yield retreated 6.8 basis points to 2.069%, a historical low.

The spread between the 2-year note and the 10-year note temporarily fell to a negative 1 basis point. An inversion of this measure has often preceded an economic downturn. Investors say its powers as a recession indicator comes from its ability to reflect when tight monetary policy is capping growth and inflationary pressures.

See: The U.S. Treasury 2-10 year yield curve inverted and that means stocks are on ‘borrowed time,’ says BAML

What’s driving Treasurys?

The slowdown in China’s economy was highlighted by a rise in industrial production at its slowest pace since Jan. 2002, increasing 4.8% in July from a year earlier versus a 6.3% increase in June. Germany’s economy shrank 0.1% in the second quarter of 2019 as the U.S – China trade war hit global manufacturing supply lines and the country’s export-dependent industries.

The raft of anemic data and the inversion of the U.S. yield curve weighed on investor sentiment, stirring demand for safe haven assets like Treasurys.

Futures contracts on the S&P 500 and the Dow Jones Industrial Average showed U.S. equities were likely to give back Tuesday’s gains.

The surge of economic pessimism comes only a day after the U.S. Trade Representative announced it would winnow down the list of goods that are set to incur a 10% tariff on additional $300 billion of Chinese imports, measures which were publicized earlier in August 1.

What did market participants’ say?

“The risk-on move inspired by Trump’s partial tariff delay lasted all of about 12 hours before Treasuries completely reversed the selloff and we find yields and the curve once again reaching new extremes,” wrote Ian Lyngen, head of U.S. rates strategy for BMO Capital Markets.

What else is on investors’ radar?

In the U.K., the spread between the 2-year yield and …read more

Source:: Daily Times


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2-year/10-year Treasury yield curve inverts, triggering bond-market recession indicator

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