Publicado: Sáb, Diciembre 08, 2018
Financiera | Por Marilu Caballero

Dollar weak as U.S. Treasury yield curve inversion sparks recession fears

Dollar weak as U.S. Treasury yield curve inversion sparks recession fears

Benchmark 10-year notes gained 13/32 in price to yield 2.966 percent the lowest since September 13. Wall Street's financial shares, which are particularly sensitive to bond market swings, dropped 4.4 per cent. S&P e-mini futures were down 0.3 per cent in Asian trade today. The benchmark 10-year yield clung to an 11-basis-point margin over its two-year counterpart, although it was the smallest in over a decade. The government's November jobs numbers will also include an update on average hourly earnings, which can be used to see how fast wages are rising across the US economy.

Concerns about slowing U.S. growth have accelerated the flattening of the yield curve, a phenomenon in which longer-dated debt yields fall faster than their shorter-dated counterparts.

Recent news has contributed to flattening the curve, including a speech on November 28 by Fed chair Jerome Powell interpreted by many as signaling a U.S. slowdown.

"The yield curve has sent a chill down investors' spines in regard to the future outlook of the US economy", said Chad Morganlander, senior portfolio manager at Washington Crossing Advisors in New Jersey.

Far from the USA facing trouble, however, New York Fed President John Williams said on Tuesday the economy is strong and the base case outlook is for rate increases to continue through 2019. Normally the longer term a project or a financial investment, the higher the return, simply because there is more uncertainty and thus more risk.

A flatter curve is seen as an indicator of a slowing economy, with lower longer-dated yields suggesting that the markets see economic weakness ahead. In its view, those rate hikes are putting the brakes on borrowing and hiring, keeping inflation under control.

In separate remarks on early December 3, Fed vice chair Randal Quarles said the central bank, while "data dependent", was following a strategy that would not be thrown off course by "every wavering" of economic statistics. Powell in remarks last week reiterated his upbeat outlook of an economy growing above potential, with the unemployment rate the lowest in almost 50 years, and in no need of emergency level interest rates.

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"It's a sloppy predictor because at some point after yield curve inversion you could get a recession that could be one year, two year, three years", said Nicholas Colas, co-founder at DataTrek Research in NY.

But markets are doubtful.

Gundlach said the Fed will need to be especially careful in its choice of words when they meet this month to deliver on their promised rate hike.

The Fed has blown three major bubbles in 18 years.

In August, the San Francisco Fed said in a study that the historical correlation between the yield curve inversion and recessions do not confirm "cause and effect".

Some traders said the dramatic curve flattening may be overdone and may revert if the government's November payrolls report out on Friday were to show solid jobs and wage growth. "I'm anxious that they won't".

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