US Bond Yield Inversion Sparks Concerns Over Economic Growth

03/08/2023 16:31 • Blockchain Buzz • 117 views

It is reported that for the first time since 1981, the yield of US two-year treasury bond is more than 100 basis points higher than that of 10-year treasury bond. The yield of two-year treasury bond was as high as 4.9974% in the session, more than 100 basis points higher than the 10-year yield. The last time the two-year yield was lower than the 10-year yield was in July last year. Fed Chairman Powell’s speech suggested that the terminal policy interest rate may need to be higher than previously expected. The interest rate swap contract price shows that the probability of raising interest rate by 50 basis points in March is slightly higher than that by 25 basis points.

The yield curve of 2-10 year US Treasuries was inverted by more than 100 basis points, breaking the record for more than 40 years

Analysis based on this information:

The recent inversion of the US bond yield curve has sparked concerns over the country’s economic growth. For the first time since 1981, the yield of the two-year treasury bond has exceeded the 10-year bond yield. This significant shift in the yield curve serves as a warning sign for economic analysts, as inversion of the yield curve usually predicts a forthcoming economic recession. The US two-year treasury bond yield rose to 4.9974% in the session, more than 100 basis points higher than the 10-year yield.

This inversion comes after Fed Chairman Powell’s statement that the terminal policy interest rate may need to be higher than previously expected. This has led to a rise in the interest rate swap contracts, which indicates an increased probability of raising interest rates by 50 basis points in March.

Many economists view this inversion as an indication of market skepticism regarding economic growth. It suggests that investors believe short-term risks are higher than long-term risks, predicting a recession within the next two years.

While inversion is regarded as a reliable indicator of a recession, it doesn’t necessarily guarantee one. The current state of the world economy is particularly volatile, and there are various factors that will affect the outcome. The effects of Brexit, the trade war between the United States and China, and the ongoing instability in the Middle East are all factors that could contribute to a recession, but they could also be resolved without a recession.

In conclusion, while the inversion of the US bond yield curve has sparked concerns, it is essential not to jump to conclusions. The state of the world economy is a complex issue, and there are plenty of variables in play. The rise in interest rates and the inversion of the bond yield curve are both indicators of market uncertainty. However, they serve as a warning sign for policymakers to be proactive in addressing potential economic risks.

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