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Treasury Yield Slipped 40 Point Plunge In July, Ignites Recession Fears

The yield from 10 year Treasury note of US which is a critical rate that is used by banks to set mortgage rates and lending rates has been falling rapidly and in the last one month it has plunged by 40 basis points. Yield curve of Treasury note is sloping downward and there is worry that 10 year rates are likely to fall below 2 year rate. Fortunately the 2-year rate which is regarded as being sensitive to Federal Reserve Policy has not witnessed any change as feared since Central bank stated that it will not reduce interest rates soon as the market was expecting.

Bank of America’s Mark Cabana said that yield curve of Treasury note is in general represented by upward sloping line that shows the amount given back to bondholders based on the duration for which they are willing to give funds to Washington. But this upward shape can become flat or inverted if investors believe that the economic growth may fall. This situation has reduced returns that long-term investors of Treasury Bonds enjoy for giving funds to government. In fact the actual yield that these investors will get this time for blocking funds for 10 years is just 1.76 % or 13 basis points while the short term two year Treasury note is presently trading at 1.63 %.

The increasing intensity of US-China trade war and tough Federal Bank has managed to convince investors that downturn in economy is very likely which has boosted demand for long term bonds. This trade escalation is affecting global growth and as it is stretching for a long time the situation is worsening for global economy. Recession in modern era may not be a reality soon as there have been false alarms in the past the current situation shows elevated risks of recession.

Daniel Serrano
Daniel Serrano Subscriber
EDITORIAL MANAGER At Daily Industry Updates

Daniel Serrano had acquired considerable experience in writing and editing publications before recruited by Daily Industry Updates news portal as Editorial Manager. His key task is to conduct effective business reviews based on the most recent business strategies. Due to his stronghold and understanding over finance, marketing, business, and trade-related topics, he is known as a business counselor among the staff. His expertise in business-related topics is quite impressive. His business-related concepts are on fingertips, which aids in illustrating the business-related articles in brief and defined way, clear to even an amateur. He pursued his post graduation in Finance from a UK-based university.

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