By David Milliken LONDON (Reuters) – Changes in the yield curve – a measure of the gap between long- and short-term borrowing costs – appear to be regaining some of their power to forecast economic developments in the United States and Britain, Bank of England researchers said on Tuesday. Historically a negative yield curve – when it is cheaper for a country to borrow over the long than over the short term – has been regarded as a harbinger of recession, especially in the United States. Such a pattern reflects expectations in financial markets that a central bank will cut interest rates in response to an economic downturn. The correlation between yield curves and economic growth appeared to fall apart after the 2008 financial crisis, but BoE staff said there were recent signs that it could be strengthening, though it remained weak. “While the warning sign from the yield curve slope should be taken with caution, it should not be discarded … [Read more...] about Yield curve regaining some of its forecasting prowess
Muni yield curve
Treasuries are leading a bull run in global bonds, bringing into sight the prospect of benchmark 10-year yields dropping to 2% for the first time since late 2016 as traders ramp up bets on monetary-policy easing by the U.S. central bank. Escalating U.S.-China trade tensions and faltering global growth have caused U.S. 10-year yields to tumble and the gap between three-month and 10-year yields -- a commonly watched recession indicator -- to move to levels last seen in 2007. Some market watchers, including strategists at Morgan Stanley, are now warning that the deepening inversion of the yield curve presages an economic downturn. Fed funds futures show that the market is pricing in about three quarter-point central-bank cuts by the end of next year, while the 10-year Treasury yield slumped Wednesday to 2.27%. Yields on similar-dated securities in Australia and New Zealand both dropped to records, while those in Japan matched a three-year low of minus 0.1%. Equivalent German bund rates … [Read more...] about Inverted yield curve deepening in bond market
Stan Choe, Ap Business Writer Updated 12:56 pm CDT, Friday, March 22, 2019 FILE- In this March 13, 2019, file photo traders gather at the post that handles Oaktree Capital Group on the floor of the New York Stock Exchange. The U.S. stock market opens at 9:30 a.m. EDT on Friday, March 22. less FILE- In this March 13, 2019, file photo traders gather at the post that handles Oaktree Capital Group on the floor of the New York Stock Exchange. The U.S. stock market opens at 9:30 a.m. EDT on Friday, March ... more Photo: Richard Drew, AP Photo: Richard Drew, AP Image 1 of / 1 Caption Close Image 1 of 1 FILE- In this March 13, 2019, file photo traders gather at the post that handles Oaktree Capital Group on the floor of the New York Stock Exchange. The U.S. stock market opens at 9:30 … [Read more...] about Potential recession signal: A key ‘yield curve’ has inverted
By Allison Prang WSJ Wed., Jan. 16, 2019 Regional-bank executives on Wednesday talked up the strength of the economy, even though the spread between long-term and short-term lending rates has narrowed, a move that could lead the market to worry about the possibility of a recession. From the end of the third quarter through mid-January, the yield-curve spread—the difference between 2-year and 10-year Treasury yields—has shrunk to about 0.18 percentage point on Tuesday from about 0.24 percentage point at end-September, according to Dow Jones Market Data. In that period, the gap hit a low of about 0.11 percentage point in mid-December. Investors watch the yield curve closely as a gauge of the profitability of banks’ lending businesses. When the gap narrows, it can erode margins from borrowing at lower short-term rates and lending at higher long-term rates. An inversion of the yield curve—when short-term rates are higher than long-term … [Read more...] about Regional Banks Brush Off Yield-Curve Worries
By Greg Ip The Wall Street Journal Wed., Jan. 9, 2019 There’s a new horror show coming to your screens: Set on Wall Street, it’s called “Inversion of the Yield Curve” and features a chilling, disembodied force that seeps into the minds of the public, triggering panic in markets and hand-wringing on cable news. As long-term bond yields fall close to short-term yields, we’ve been regularly reminded that an inversion—when long-term yields drop below short-term yields—has preceded each of the past five recessions. The yield curve—a chart of yields against bond maturities—is being mentioned increasingly on corporate conference calls, especially of financial companies, according to an analysis by Prattle, which studies language for investment clues. But how much you should worry depends crucially on whether an inverted yield curve predicts a recession, or causes a recession, or both. Short-term interest rates are set by … [Read more...] about Should you fear the yield curve?