Treasurys signals could not have worse timing
The Treasury yield curve is inverting as sentiment frays, partly because hopes on the U.S.-Sino trade agreement are evaporating.
Share this:
Treasury yield curve inversion that’s throwing eye-catching shapes in closely watched rates elsewhere, is one of the reasons why a softer dollar isn’t easing risk aversion. The gap between two and 10-year Treasurys shrunk to the narrowest in around 11 years earlier. This lifts the curve created to within 13-14 basis points of ‘inversion’, the traditional harbinger of a coming U.S. recession. The gap between Germany’s two and 10-year bonds duly narrowed to the tightest in 17 months. Investors in Europe’s ‘growth engine’ are signalling that any future U.S. downturn, which consensus forecasts pin no sooner than late 2019, would eventually be mirrored on the continent.
All told, U.S. Treasurys are back in focus for the umpteenth time this year, though this time most of the interest is watching the downside. Fragile sentiment can be expected to over-react, whilst the emerging downtrend in yields also looks like an over-riding factor for the dollar. Additionally, the second testimony of Fed chair Powell to congress this year has been postponed due to commemorations of President H.W. Bush on Wednesday. With markets closed, attention on yield events, via futures, should be closer.
As the yield curve flattens, a break of its 10-year yield below the long-term trend marker (the 200-day moving average) for the first time since November 2017, is being closely watched. Traders will treat a close beneath the 200-DMA as an important juncture, increasing pressure on the dollar. In turn, this could propel symbiosis with yields further, as they both spiral downwards. Yield drama could subside later in the week, in the run up to the release of payrolls on Friday. As usual a number of unofficial curtain raisers, including ISM data, will precede payrolls. It is quite likely that these data will continue to paint a firm picture of U.S. hiring. This will bolster views that the U.S. economy remains robust. But after the 10-year yield definitively busted its cleanest rising line since September and as it now threatens another key indication of strength, broader markets are unlikely to escape continued tests this week.
Open an account in minutes
Experience award-winning platforms with fast and secure execution, and enjoy tight spreads from 0.5 pts on FX and 0.3 pts on indices.
Economic calendar
Web Trader platform
Our sophisticated web-based platform is packed with features.
Related articles
AUD/USD hammered by US yields and fading RBA hike bets
US yields, dollar strength and fading RBA hike bets have combined to drive AUD/USD to fresh multi-month lows. The macro and technical bias remains bearish, although history suggests parts of the move are now reaching unusually stretched levels.
Gold Forecast: Are Bears Regaining Control of XAU/USD?
The start of the trading week has not been particularly favorable for gold. This can be seen in recent XAU/USD price action, with the metal falling nearly 4.00% over the last two trading sessions and bringing renewed attention to a bearish bias within the market.
Gold outlook: XAU/USD hammered, stretched and vulnerable to a sharp rebound
Gold is getting hammered for solid fundamental reasons, but history suggests extreme four-hourly oversold conditions can produce violent countertrend rallies.
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.forex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.