Dow Crashes 660 Points as Bond Yield Inversion Ignites Wall Street Panic


Japan's Nikkei 225 (^N225) trailed almost 1.5% lower, while Hong Kong's Hang Seng Index (^HSI), and China's Shanghai Composite (000001.SS) were down for most of the day, recuperating to trade flat at the send of the session.

The yield curve inversion does not tell us anything about what might be the specific reasons for any impending recession.

"We have regional bonfires in Hong Kong, Argentina, Japan against South Korea, and none of these are going away easily; each and every one is not necessarily strong enough to cause trouble".

Growing economic worries stemmed from the latest weakness in economic data, global negative bond yields, ongoing trade tensions and political turmoil that "all led equities and USA treasury yields lower", said Leslie Falconio, a senior strategist at UBS Global Wealth Management's Chief Investment Office.

The temporary flip in yields sent stocks sliding, and the S&P 500 was down as much as 2.7% in the afternoon.

Benchmark 10-year notes () fell 9/32 in price on Friday to yield 1.556%, after reaching a three-year low of 1.475% on Thursday.

U.S. Federal Reserve recently lowered interest rates for the first time since the 2008 global financial crisis, amid rising concerns over trade tensions, a slowing global economy and muted inflation pressures.

In particular, low and even negative global interest rates and global economic uncertainties are driving investors worldwide to buy U.S. Treasury bonds, and all that buying pushes the yields down.

With strained economic data coming out of China and Germany, economists around the world now worry about a similar strain on the global economy.

The idea of a flatter U.S. and global yield curves is certainly not a new theme.

Stocks on Wall Street closed mixed after a day of choppy trade.

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As TheStreet reported yesterday, although yields "subsequently rose to 1.592% for the 2-year Treasury and 1.596% for the 10-year note, putting the curve's slope back into positive territory", it was not enough to prevent "a big sell-off in us stocks, with the Dow Jones Industrial Average falling some 800 points".

On Wall Street, futures for the Standard & Poor's 500 Index and the Dow were up 0.5%.

"Regardless of the type of slowdown in the USA, it will be bad news for the Japanese economy as one of its major trading partners heads for slower growth", he said.

The Dow Jones Industrial Average fell 616 points, or 2.3%, to 25,659.

The declines more than erased the market rally on Tuesday that was triggered by the Trump administration unexpectedly saying it would suspend plans to impose some new tariffs on China.

Brent crude was down 0.8%, at $59.03 a barrel, after falling 3% in the last session, while US crude fell 0.5% to $54.96 a barrel, having dropped 3.3% in the previous session. Lower bond yields are bad for banks because they force interest rates on mortgages and other loans lower, which results in lower profits for banks.

That expectation, nurtured in recent weeks by worsening U.S.

When the yield on longer-term Treasurys falls below that of shorter-term issues, economists call that an "inverted yield curve".

Investors have been buying up safer government bonds for months amid concern that a poor economy could hamper United States growth. The contract fell $1.82 on Wednesday to close at $55.23.

CURRENCY: The dollar gained to 106.23 yen from Wednesday's 105.86 yen. The dollar index .DOXY rose 0.15%, with the euro EURO= down 0.26% to $1.1109.