Are Bond Yields Signalling Recession?

Inverted bond yields are often seen as a sign that a recession is on the horizon, but they can't predict exactly when it will happen 

Cherry Reynard 24 July, 2019 | 11:50AM

bonds

Bond markets tend to reflect a gloomier outlook than more Tigger-like equity markets and, for the past few months, that gloom has appeared even more entrenched. In particular, the inversion of the US yield curve - typically a precursor to recession - has given investors pause for thought.

The yield curve inverts when short-dated bonds have a higher yield than long-dated bonds - three-month US Treasuries now yield 2.08%, against 2.05% for 10-year bonds. This is unusual because investors would usually demand a higher yield to tie up their money for longer. It shows that markets believe interest rates will have to come down in future - usually in response to a weakening environment. As such, it is seen as a harbinger of recession.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar
Rating
Nomura Fds Global Dynamic Bond F GBP H119.87 GBP-0.05

About Author

Cherry Reynard

Cherry Reynard  is a financial journalist writing for Morningstar.co.uk.

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