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Updated 15:20 14/10/19

10-year bond yields invert following worst rates in over a decade

Liam Sheasby

By Liam Sheasby, News Editor

14 Aug 2019


Treasury bonds in the US and UK are today experiencing inverted yields for the first time in over a decade. High demand for bonds is pushing the yield offerings down as the treasuries involved need less incentive to attract investors, meaning they have little need to offer much – or any – long-term profits.

The US Treasury 10-year bonds are currently yielding 1.62%, while the UK Treasury 10-year bonds are at a lower 0.46%; their worst since 2007 and 2008 respectively. The significance of these weak bond yields is that they typically serve as an indicator of looming recession; a fear that has been in the back of investor minds in recent months.

Treasury bonds, along with gold and the Japanese Yen, are seen as a less risky investment option in times of economic crisis or slowdown – as we’re currently experiencing with the ongoing US/China trade war, Brexit, and the Eurozone struggles. Gold has gained over 10% value in the past month, and almost 25% in last three months, indicating similar levels of demand to hedge risk.

Jasper Lawler, Head of Research at London Capital Group, pointed out that based on previous negative yield curves, the expected decline in the US economy would time perfectly with the US presidential elections in 2020.

The next step for investors and analysts will be to watch the stock market reactions. Asia and Europe are already struggling following poor economic data. The Eurozone’s growth has halved from 0.4% to 0.2%, while China registered its worst industrial production growth for 17 years. If the US markets react badly to the inverted yield curves, then we could see bond yields fall further, while investment gold and the Yen could make fresh gains.

In this scenario it is likely that President Trump will make fresh calls for further interest rate cuts. The Federal Reserve already made a u-turn this month to drop rates by 0.25%, and economists are predicting up to three more quarter-percent cuts before 2019 is over. There are investors and experts who are unhappy about the pressure from the president however, and who feel that his approach to criticise Jerome Powell (Fed chairman) repeatedly in the press has been a level of interference that is inappropriate; regardless of whether Trump was right or wrong about monetary policy.


UPDATE: Thursday 15th August

It took less than 12 hours for President Trump to come out and do exactly as was suggested above. Timely.

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