US Treasury yields are tumbling (along with German bund yields) as 2019 opens up with a broad risk-off sentiment and global growth scare.
30Y Yields are back below 3.00% and 10Y hit 2.60 handle - its lowest since January 2018...
All of which - confused by shutdown fears, liquidity concerns, repo rate carnage, and The Fed's QT - has left the yield curve of the supposedly most liquid bond market in the world in a total mess of inversions... from 1Y through 8Y is now inverted...
And as Bloomberg reports, this inversion reinforces the warnings from a market indicator watched by the Fed as one of the most accurate gauges of economic health is pricing in lower rates for the first time in more than a decade.
This little-known near-term forward spread, which reflects the difference between the forward rate implied by Treasury bills six quarters from now and the current three-month yield, fell to -0.0653 basis point on Wednesday.
It was the first time since March 2008 the gauge -- seen as a proxy for traders’ outlook on Federal Reserve policy -- fell below zero.
Crossing the threshold indicates the market sees easier policy and recession in “the next several quarters,” economists at the U.S. central bank wrote in a research paper dated July 2018.
“When negative, it indicates market participants expect monetary policy to ease, presumably because they expect monetary policymakers to respond to the threat or onset of a recession,” Eric C. Engstrom and Steven A. Sharpe wrote.
“When market participants expected -- and priced in -- a monetary policy easing over the next 18 months, their fears were validated more often than not.”
If equities are right - the massive underperformance of cyclicals relative to defensives - then Treasury yields have a long way to fall...
But in the short-term, we wonder how much of last week's buying panic in stocks will hold?