US yield inversion spreads on concerns about slowing growth

NEW YORK: The difference between short-dated and long-dated US Treasury yields narrowed further on Tuesday as the inversion of the yield curve spread between more maturities, prompted by worries about a slowdown in US economic growth.

The yield on the two-year note briefly rose above the three-year yield for the first time since January 2008. Two-year and three-year yields held above the five-year yield for a second day, Tradeweb data showed.

"A lot of the rally in Treasuries has to do with the sell-off in stocks," said John Canavan, market strategist at Stone & McCarthy Research Associates in New York.

Concerns about weakening US growth caused traders to exit earlier bets on rising bond yields, pushing longer-dated yields to their lowest levels in nearly three months.

Wall Street's main gauges tumbled, with the benchmark S&P 500 falling 2.75 percent.

Yield curve inversions are seen generally as precursors of a recession. An inversion of the two-year and 10-year yields preceded each US recession in the past 50 years.

So far, there has been no inversion of the two-year and 10-year. The 10-year yield clung to an 11-basis-point margin over its two-year counterpart, although it was the smallest one in over a decade.

"It doesn't signal there's a recession anytime soon. It is signaling expectations of a growth slowdown," Deborah Cunningham, chief investment officer of money markets at Federated Investment Management Co in Pittsburgh, said of the parts of the curve that inverted.

At 3:29 p.m. EST (2029 GMT), the 10-year Treasury yield shed nearly 8 basis points, to 2.915 percent, after hitting its lowest level since Sept. 7.

The 30-year yield touched 3.129 percent, the lowest level since Sept 18.

Concerns about weaker growth have stoked bets the Federal Reserve will end its campaign to raise interest rates sooner than previously thought, analysts said.

The futures market implied traders expect the US central bank will raise rates by a quarter percentage point to a range of 2.25 percent to 2.50 percent at its next policy meeting, on Dec. 18-19, according to CME Group's FedWatch program.

However, traders scaled back their expectations of two rate hikes in 2019 to less than 10 percent, down from 59 percent a month ago.

New York Fed President John Williams on Tuesday said he expects further rate hikes in the face of a strong economy, but that did not cause traders to reduce their outlook on the number of future Fed rate hikes.

US stock and bond markets will be closed on Wednesday for a national day of mourning for former US President George H.W. Bush, who died on Friday.