As stock markets continue their violent losses, warning signs are beginning to loom in global bond markets Also, to reveal how worried investors are about the economy and inflation and what central bankers will do next.
The data indicates that the yield on US 10-year Treasury bonds – which moves with opposite prices – jumped to 3.36% on Monday, the highest level since 2011, which means that the US economy is on a date with new crises that require swift action by the US President. Joe Biden.
But the yield on two-year Treasuries rose even further, as investors dumped those notes, too.
This gave rise to an unusual phenomenon known as yield curve inversion.
The yield on long-term bonds is usually higher than the yield on short-term bonds.
It is difficult to predict what will happen in the future, and investors want to be compensated for this additional risk.
However, after the sudden jump in US inflation in May, when prices rose at their fastest rate in 40 years, traders are preparing for dramatic action from the Federal Reserve later this week.
This could cause trouble for the economy in the short term.
In comments to CNN, former Federal Reserve Chairman Ben Bernanke believes that current Fed Chairman Jerome Powell can still bring down inflation without causing a recession.
“Economists are very bad at predicting recessions, but I think the Fed has a good chance – a reasonable chance – of making what Powell calls a soft landing, either a no-recession or a very moderate slump to bring down inflation,” he said.
Also, bond traders are more skeptical, and a yield curve inversion precedes every single recession since 1955, according to research by the Federal Reserve Bank of San Francisco.
In Europe, too, the bond market is also showing signs of concern, as the gap between yields on German and Italian 10-year government bonds was at its widest since March 2020 in Monday’s trading.
The same was true for German and Greek 10-year bonds before the market holiday in Greece.
This points to concern that the European Central Bank – which announced last week that it would raise interest rates in July for the first time in 11 years – could strain EU countries with high debt burdens as it raises borrowing costs, the more debt they have to pay to service Debt, say that for other purposes.
But at the same time, Europe is in a better position than it was before when the European Central Bank started raising interest rates in the run-up to the region’s debt crisis.