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US yield curve flirts with inversion on haven demand

  • Treasury yield curve could soon invert on sustained haven demand for the 10-year note. 
  • The inversion would be a signal of global growth issues.

The US yield curve is about to invert as long-duration bonds are drawing haven demand amid coronavirus scare.

The spread between the 10-year and three-month bond yields has dropped to zero. as both yields are now trading near 1.57%. 

While the three-month yield has largely traded in a sideways manner in 1.5% to 1.6% range so far this year, the 10-year yield has dropped from 1.95% to 1.57%. 

The curve could soon invert (negative spread) reigniting US recession fears. Investors, however, should note that the yield curve is close to inversion due to increased haven demand for the 10-year treasuries (and the resulting slide in the yield).  

Treasuries now make up more than half of the world’s haven assets, double the share they accounted for during the global financial crisis, Eurizon SLJ Capital said, according to Bloomberg report. 

Therefore, the impending inversion signal might say more about the state of the global economy than the US business cycle. 

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