Culprit For All "Yield Curve Inversion"


Monetary policy in Europe appears poised to support global debt as well. However, a central bank pause is the responsible thing to do, Fed Bank of Boston president and CEO Eric Rosengren said at a conference in Hong Kong. While its market has not been directly impacted by central bank purchases, its economy is so closely tied to its southern neighbor that it rarely enters a recession without a US contraction.

Haven demand was also spurred by some concerns in emerging markets, with the Turkish lira plunging as traders grappled with the government's curbs on trading the currency.

The Treasury Department will sell US$113 billion (RM459 billion) in coupon-bearing supply this week, including US$40 billion in two-year notes today, US$41 billion in five-year notes tomorrow and US$32 billion in seven-year notes on Thursday. The sale of 2024 securities will be of particular interest given the recent outperformance of that part of the curve, generally referred to as the belly.

However, the recent decline in the US bond yields was arrested as risk appetites improved, pushing yields slightly higher. That's because a fall in financing costs likely sparked more people to refinance their mortgages, cutting mortgage-bond holders duration. The yield on the 10-year USA government bond yield lifted 2 basis point to 2.42 percent.

Germany's 10-year bond yield remained near 2-1/2-year lows at below zero percent.

Marty Mitchell, an independent strategist, wrote in his daily newsletter to clients, said that increasing amounts of negatively yielding bonds outside America have been supportive of the USA market and there are also haven flows into Treasuries. "Treasuries are at 2.37% as of 8.55 a.m in London (4.55 a.m ET)".

Market Hesitation Binky Chadha, a strategist at Deutsche Bank AG, has indicated that the move in yields and rate-cut bets may have its limits, and could even reverse.

"Investors are just a little anxious about the rest of the year as far as growth", said Chris Gaffney, president of world markets at TIAA Bank.

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"The market is anticipating that there is going to be dovishness from (the Reserve Bank of New Zealand) because there has been dovishness from other developed market central banks", said Thierry Wizman, global interest rates and currencies strategist at Macquarie Limited in NY.

A closely watched segment of the U.S.

It's not just Treasury yields that are the ones falling, earlier Australia's 3-year bond yields fell to historic lows while yesterday we saw 10-year bund yields sink deeper into negative territory.

Investors have been spooked by sharp falls in U.S. bond yields and an inversion of the U.S. Treasury yield curve, which is widely seen as an indicator of an economic recession.

"The world is looking to fade the risk aversion caused by the inversion of the [US] yield curve", said Société Générale strategist Kit Juckes, adding that it was hard to position for a hypothetical recessions anyway.

The Canadian yield curve has also been inverted since Friday, adding concerns that this economic indicator may be suggesting that the Canadian economy is also facing a rough patch ahead.

It has fallen more than 20 basis points since the Fed last week ditched projections for raising rates this year and announced the end of its balance sheet reduction, citing signs of an economic slowdown.