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US: Revenue Curve Inversion, Indicator of Economic Recession



Investment and markets

The interest rate on 10-year US Treasury bills fell temporarily below Wednesday's two-year coupon rate, a phenomenon known as the "yield curve reversal".

This movement, which reflects the difference in yields given by the US government to investors who increase their debt in the short or long term, is particularly feared by financial markets as it is usually a leading indicator of recession. The reversal happened just before 2pm, when the 10-year rate fell just below the 2-year rate, about 1.62%.

The 30-year lending rate has fallen to its lowest historical level, at 2,0139% around 1150 GMT.

The news slashed the trends of the Wall Street opening trend, indicating the start of the session down by more than 300 points for the Dow ones. The Paris Bursh also sank red, shortly losing more than 2%.

Unpublished situation

While the US still has positive rates, the eurozone is in "unprecedented situation“, With negative yields on bonds that move from day to day and go from record to record.

Germany's 10-year bond rate, the Bund, which calls for the eurozone debt market, hit a new historic high of -0.654% on Wednesday. That France followed the same pattern, reaching -0.373%.

Inversion of the yield curve in the United States »does not automatically lead to a short-term recession. We can stay a few months or even a few quarters in a situation of a curve inversion without the economy going into recession"Analyzed for AFP Kiriak Daieland, a diversified manager at Sanso IS.

"However, it confirms the slowdown in global growth"and"increases the likelihood of a recession, but not systematically in the short term"He added.

Commercial war

The trade war began more than a year ago by Donald Trump forcing China to come to the negotiating table and try to tackle the very large trade deficit and trade practices that Washington considers unfair, beginning to weigh on morale and the results of many sectors as well as the US stock market.

It may be a sharp drop in recent indications of the difficulties facing talks with China that convinced the US president to make an appeal on Tuesday by delaying the imposition of new penalties on any series of consumer products imported from China.

Interest rate curves are considered "normal" when investment-related return rates are even higher when their maturity is remote.

Since lending money in the long run is riskier than in the short run, borrowers need to offer greater returns for investors who are willing to take risks and give up liquidity.

In the case of an inverted curve, short rates become higher than long rates.

The US government bond market generally lends itself to the global bond market, though each major geographic area retains its specifics.


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