US yield curve inverts again as US central bankers meet

Recession indicator comes in advance of Federal Reserve gathering at Jackson Hole

The inversion of the yield curve  has occurred before every US recession of the past 50 years. Photograph: Reuters

The inversion of the yield curve has occurred before every US recession of the past 50 years. Photograph: Reuters

 

Shorter-dated US bond yields once again eclipsed those for longer-dated notes on Thursday, signalling fears among bond market investors that the Federal Reserve will fail to cut its benchmark rate fast enough to shield the US economy from slowing global growth and an escalating trade dispute with China.

For the third time this month, the yield on two-year US Treasury bills jumped above that of the benchmark 10-year note. Another portion of the yield curve - reflecting the difference between the yields on three-month and 10-year Treasury securities -– slipped deeper into negative territory, settling just shy of 40 basis points.

50 years

The inversion of the yield curve – which has occurred before every US recession of the past 50 years – came as Fed officials convened in Jackson Hole, Wyoming, for their annual meeting, to be capped off with a speech by Jay Powell, Fed chairman.

Less-than-dovish commentary from Esther George, the Kansas City Fed president, and Patrick Harker, the Philadelphia Fed president, fuelled concerns that the central bank was unlikely to meet market expectations and slash interest rates roughly 100bp by the end of 2020, as futures prices currently indicate.

In television interviews, both Ms George and Mr Harker said they saw little reason for additional interest rate cuts beyond the Fed’s quarter-point reduction in July. – Copyright The Financial Times Limited 2019