NEW YORK–The bond markets—from government debt to commercial bonds—are “flashing warning signs that could foreshadow potentially huge problems for the economy,” according to one analysis.
Among those warning signs, according to a number of publications:
- The yield on the 10-year Treasury, which was higher than 2% a week ago, earlier this week fell briefly to under 1.6%, while yields on the 30-year note approached a record low of 2.106%. “That means the yield curve’s inversion, where yields on longer-term Treasury notes fall below those of shorter-term ones, has widened. That’s usually considered a strong predictor of recession,” said the New York Times.
Evidence is also emerging that inflated ratings for commercial bonds, one of the causes of the 2008 financial crisis, persist, according to the Wall Street Journal. One bond investor told the Journal, “We don’t trust the ratings.”
Market Expects Rate Cuts
Meanwhile, “Wall Street has a message for the Federal Reserve: You are not done cutting rates,” the Times reported.
The publication said the financial markets and investors expect rates to “fall fast.” As CUToday.info reported, the Fed voted to cut rates at its meeting last week, the first time it has done so in a decade.
“In bond markets this week, yields on government debt have touched lows not seen since 2016, when a sharp slowdown in economic growth — and what many now view as a mini-recession — gripped the economy,” the Times reported. “The decline implies investors have substantially downgraded their expectations for the economy.”
Effects of Trade War
The trade war between Washington and Beijing has also continued to escalate, sending many investors to the relative safety of government bonds. Governments in Thailand, India and New Zealand, all of which have strong relationships with China, have moved to lower rates.
However, as CUToday.info reported here, the president of the Federal Reserve Bank of St. Louis, James Bullard, also indicated he did not see a reason to rush to cut rates in response to every twist of the trade war.