U.S. government debt prices rose on Thursday, with investors rattled by volatility in equity markets and anxiety around a potential yield curve inversion.
The yield on the benchmark 10-year Treasury note sank to around 2.892 percent, while the yield on the 30-year Treasury bond dipped to 3.157 percent. Bond yields move inversely to prices.
The latest point of contention for fixed-income investors circles around a phenomenon known as an inversion in the Treasury yield curve, which displays the yields on all U.S. paper maturities, ranging from 1-month bills to 30-year bonds. Yield curves typically slope upward, as an investor expects higher returns as they take on more risk the longer amount of time it takes for a bond to reach its maturity.
But recently the spread between the 2-year and 10-year yields has narrowed, while the spread between the 3-year and 5-year yields already inverted earlier this week. That’s a point of nervousness for investors as yield inversions tend to precede a recession.
A recession wouldn’t be immediate, but economists in the past have warned that recessions have followed inversions a few months to two years later several times over many decades. Although, the yield on the two-year Treasury note fell significantly on Thursday, to 2.758 percent, a move that could alleviate some of those concerns.
Jitters in stock markets meanwhile have also weighed on traders, leading to increased buying in typically safe haven assets like government bonds and gold.
The Dow Jones Industrial Average suffered an almost 800-point drop on Tuesday, as fears over a slowdown in economic growth and the U.S.-China trade war took hold. It was the index’s worst performance since Oct. 10.
Questions linger over whether Washington and Beijing will resolve their dispute within a 90-day truce that was agreed by each other’s governments at the G-20 summit.
Canada’s arrest of Huawei Chief Financial Officer Meng Wanzhou over the alleged violation of sanctions against Iran has intensified worries around the spat between the two countries. Meng, the daughter of Huawei founder Ren Zhengfei, faces extradition to the U.S.
Elsewhere, investors are anticipating an upcoming meeting of the Federal Reserve, scheduled to take place on Dec. 18. The U.S. central bank is widely expected to raise rates this month, however recent dovish commentary from Chairman Jerome Powell has led to queries around how many times it will hike rates next year.
A slew of economic data are due to be released on Thursday: the Challenger Job-Cut Report is due at 7:30 a.m. ET, the ADP Employment Report is due at 8:15 a.m. ET, international trade figures, jobless claims numbers and productivity and costs data are due at 8:30 a.m. ET.
Meanwhile, the Treasury will auction $40 billion in four-week bills and $30 billion in eight-week bills on Thursday.
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