US Yield Curve Flashing Warning Signal for Economic Growth
(13 July 2018 - USA) A closely watched indicator of underlying economic health, the shape of the yield curve on US bond yields on six months to 30 years duration, hit a concerning eleven year low last week, renewing fears of economic slowdown.
Global investors and analysts remain worried about the outlook for global markets and their ability to absorb a trade war.
The US Federal Reserve is predicted to raise its key rate twice over the rest of this year. The difference between two-year and 10-year Treasury yields dropped further last week, hitting its lowest level since August 2007. The Financial Times explained that this difference is an important signal for investors of when the Federal Reserve may reign in its policy tightening and is also seen as a warning of a coming recession if it turns negative, which last occurred in 2006.
That gap has fallen to as narrow as 24.322 basis points (0.24322 percent), the first time below 25 basis points since 9 August 2007 before recovering to 25.504. Analysts say that the rising chance of more rate rises from the Federal Reserve is the major influence but there is now a strengthening view the chances of an economic slowdown in the U.S. are building. The yield on the benchmark 10-year US Treasury was down 2.6 basis points at 2.8271 percent at the end of last week while that on the two-year was off 1.2 basis points at 2.582 percent.