Treasuries Buying Wave Triggers First Curve Inversion Since 2007


The Treasury yield curve was reversed for the first time since Friday’s latest crisis. Of course, this brought with it a consequence, which unleashed the first reliable sign of the market of an impending cycle of recession and rate cuts.

It should be noted that the gap between three and ten-year yields faded when a wave of purchases brought the latter to a 14-month low of 2,416 percent. The investment is considered a reliable harbinger of recession in the USA, approximately in the next 18 months.

Likewise, the demand for government bonds gained momentum on Wednesday, when policymakers at the US central bank reduced their growth forecasts and their interest rate prospects.

So it is important to highlight the fact that most officials now do not expect increases this year, below an average of two at their December meeting. That being the case, the operators took that moderate change as their indication of seeking positions for a cycle of flexibilization of the Fed.

Network flexibility cycle

As already mentioned, the operators took that moderate change as their indication of seeking positions for a cycle of easing the Fed, leaving a price cut by the end of 2020 and a possibility of one-two reduction this year.

For its part, Charles Schwab & Co. chief fixed income strategist, Kathy Jones, said “It seems that the concern about the global slowdown has been confirmed and the market is beginning to put a price on the Fed’s flexibility, at a possible recession in the future”, she added, “It’s clearly a sign that the market is worried about growth and is moving toward Treasuries from riskier asset classes”.

The yield curve becomes negative for the first time since 2007. In this way, the wave of purchases that has reduced the yield to 10 years by almost 20 basis points in recent days also has global catalysts.

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Source: Emily Barrett and Katherine Greifeld | Bloomberg

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