The Treasury yield curve inverted for the first time since the last crisis Friday, triggering the first reliable market signal of an impending recession and rate-cutting cycle.
The gap between the three-month and 10-year yields vanished as a surge of buying pushed the latter to a 14-month low of 2.416 percent. Inversion is considered a reliable harbinger of recession in the U.S., within roughly the next 18 months.
Demand for government bonds gained momentum Wednesday, when U.S. central bank policy makers lowered both their growth projections and their interest-rate outlook. The majority of officials now envisages no hikes this year, down from a median call of two at their December meeting. Traders took that dovish shift as their cue to dig into positions for a Fed easing cycle, pricing in a cut by the end of 2020 and a one-in-two chance of a reduction as soon as this year.
“It looks like the global slowdown worries have been confirmed and the market is beginning to price in Fed easing, potential recession down the road,” said Kathy Jones, chief fixed-income strategist at Charles Schwab & Co. “It’s clearly a sign that the market is worried about growth and moving into Treasuries from riskier asset classes.” (By Emily Barrett and Katherine Greifeld, March 22, 2019, 8:49 AM CDT Updated on March 22, 2019, 12:17 PM CDT – Bloomberg)