Treasury Yield Curve has Bank Clients Warming to Government Bonds

The Treasury yield curve inverted for the first time since the last crisis on Friday. The event had many economists predicting a potential rate cut in 2019 for the first time in months and increasing speculation of a potential recession.  

The 10-year yield caught fire last week and buying brought it down to 2.416 percent. The potential of a recession in the next two calendar years dramatically increased.  The United States central bank became more pessimistic on growth and forecasted lower interest rates in the future.  This was a surprising turn of events after rising interest rates in 2018, and now most analysts believe there would not likely be an interest rate hike in 2019.  

Wall Street reacted at the end of the week by taking positions that would indicate the Fed would actually ease rates and could potentially cut the rates within twelve to eighteen months.  

“It looks like the global slowdown worries have been confirmed and the market is beginning to price in Fed easing, potential recession down the road,” said Kathy Jones, chief fixed-income strategist at Charles Schwab & Co.  A move into treasuries is always a sign of economic concerns.  

The gap between the 2-year and 10-year yields has also narrowed, to around 11 basis points.