The yields on long-term global treasury bonds have fallen below those of short term global treasury bonds, a major warning of a coming global recession.
The average yield on sovereign debt maturing in 10 years or more is now less than the average yield on securities due in one to three years, Bloomberg’s Global Aggregate bond sub-indexes demonstrate. This is the first inversion of the global yield curve to occur since Bloomberg began collecting data at the beginning of the millennium, Yahoo! Finance reports.
Global yield curve inverts for the first time since 2000.https://t.co/XC15gbIyAT pic.twitter.com/rDy0KMvjIY
— Daniel Lacalle (@dlacalle_IA) November 29, 2022
Yield curve inversion is a key sign a recession is coming, as investors become more pessimistic about the short term economic outlook and switch money to long term bonds, per Yahoo! Finance. European Central Bank President Christine Lagarde said Monday that inflation has not yet peaked, signaling more interest rate increases ahead, Reuters reported. (RELATED: Dow Plunges Nearly 500 Points As China Fears Rattle Investors)
The yield curve inversion for US bonds has also reached its largest gap in decades, according to The Wall Street Journal. Last week, the yield on 10-year US treasuries dropped 0.78 percentage points below the yield for two-year US treasuries, the biggest negative gap since late 1981, soon before a recession began.
This gap is a sign that investors believe the Federal Reserve will continue to fight inflation regardless of how rising interest rates affect the broader economy, according to the Journal. There’s also the possibility the greater yield curve inversion is a sign of inflation weakening before the economy normalizes, the Journal reported.
Investors are expecting Fed officials to continue to raise interest rates to combat inflation, with one top official signaling yesterday the central bank expects inflation to be higher than its 2% target into 2024, the Wall Street Journal reported.
The Bureau of Labor Statistics recorded a year-to-year Consumer Price Index increase of 7.7% in October, the lowest inflation measurement since January of this year.