US Bond Market Shows Warning Signal of Economic Downturn

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Home / Blog / US Bond Market Shows Warning Signal of Economic Downturn

US Bond Market Shows Warning Signal of Economic Downturn

US Bond Market Shows Warning Signal of Economic Downturn
Home / Blog / US Bond Market Shows Warning Signal of Economic Downturn

US Bond Market Shows Warning Signal of Economic Downturn

US Bond Market Shows Warning Signal of Economic Downturn
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The US treasury market on Tuesday flashed a warning signal of the potential economic downturn that has gripped the worldwide financial markets. 

For the third time this year, 10-year US government bond yields dropped below those on two-year notes. This is because every US recession in the past fifty years has been preceded by so-called inversions of the yield curve, not immediately but within the next two years.

Investor confidence has declined recently due to indications that firms and individuals are being hit harder by ongoing inflation that has driven up the cost of goods like food and fuel and rising borrowing costs as the Fed Reserve raises interest rates.

Concerns over the state of the largest economy in the world increased this week after an Institute for Supply Management poll on the US manufacturing sector revealed reductions in new orders and employment last month.

On the other hand, the Federal Reserve Bank of Atlanta predicts that the US economy will contract by 2.1% annually in the second quarter, following a decline in the first quarter. This prediction takes into account newly available economic data. Two consecutive quarters of contraction are often seen as the start of a recession.

Bank of England governor Andrew Bailey warned, saying “the global economic outlook has significantly worsened.” As traders ran to the safety of the US dollar, the Euro dropped to its two-decade lowest level. 

Meanwhile, Investors are losing hope of a Federal rate hike as the economic outlook slows. Futures markets indicate that the US central bank now expects to move benchmark rates to 3.3 per cent in early 2023, down from estimates of 3.9 per cent three weeks ago. The Fed’s benchmark interest rate this year is between 1.5 per cent and 1.75 per cent, after several hikes this year.

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