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Crash Ahead

Crash ahead? This market sign sure indicates it

For the first time since pre-crisis 2007, ten-year US treasury bonds on Friday offered lower yield than their 3-month equivalents – as risk-wary investors seek shelter.

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A Bloomberg article headlined “Echoes of 2007”, published by Treasury & Risk, refers to Friday’s price observation as “the first reliable market signal of an impending recession and rate-cutting cycle”.

“The market is worried”

“It’s clearly a sign that the market is worried about growth and moving into treasuries from riskier asset classes,” comments Kathy Jones, chief fixed-income strategist at Charles Schwab, in the article.

However, while many expect an approaching downturn – after an expansion which has been close to the longest on record – some emphasize that the now occurred inversion of the bond yield relationship is a weak indicator of timing.

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“Its inversion can suggest a recession occurred six months ago or will occur two years from now,” says TD Securities US rates strategist Gennadiy Goldberg in the Bloomberg article.

Cold European wind

Checking the yield tableau for March at the website of the Department of the Treasury shows that since 1 March the 10-year yield is down from an annual 2.76 percent to 2.44 percent, while 3-month bonds just showed a minor move from 2.44 to 2.46 percent.

In the last days, the trend is reported to have been pushed also by factors including poor European factory data.

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