Yield Curve Briefly Inverts as Data Shows Slowing Growth in Europe, Asia

 

US yield curve inverts briefly, sparking recession fears. Rates fell dramatically across the curve in response to weak economic data in Europe, 10 year bonds outpacing 2 year Treasurys to push the 2’s-10’s spread briefly into negative territory. The spread ended the day in positive territory, but only just at 0.002%. The spread is an often cited harbinger of recession- even President Trump expressed concern, criticizing “clueless Jay Powell and the Federal Reserve” for the “CRAZY INVERTED YIELD CURVE.” The inversion comes despite relatively strong fundamentals in the US economy, and record low unemployment levels. 30 year Treasury yields fell to record lows- closing at 2.018%.

 

 

German economy shrinks 0.1% in in second quarter, sending German equities and bond yields lower. Germany’s economy, the largest in Europe, now has an annualized growth rate of 0.4%- its slowest level of growth in six years. The result underlines how dependent the German economy is on exports, as the US-China trade war and the prospect of a hard Brexit have wreaked havoc on global trade. German government bond yields fell to historic lows of -0.62%.

 

 

US equities fall sharply lower amid growth concerns. The S&P 500 and Dow Jones Industrial Average followed European stocks lower, falling 2.9% and 3% respectively as investors digested the weak economic data out of China and Germany. The VIX or “Fear Index” ticked higher to 22.1, but remained well away from year to date highs.