The rate on the benchmark 30-year Treasury bond sank to a new all-time low on Wednesday while the U.S. yield curve inverted even further as fixed-income traders continue to bet on tepid inflation and slower growth in the United States.
Yield curve inversion continued to worsen on Wednesday as the yield on the benchmark 10-year Treasury note slumped further below that of the 2-year note — at 1.461% and 1.508%, respectively — after closing inverted for the second day in a row on Tuesday.
Bond traders consider a 10-year rate below the 2-year yield a notable recession signal, marking an unusual phenomenon as bondholders receive better compensation in the short term. Before August, the last inversion of this part of the yield curve was the one that began in December 2005, two years before the financial crisis and subsequent recession.
The spread between the 3-month Treasury yield and that of the 10-year note — the Federal Reserve’s preferred inversion metric — sank to -53 basis points, its lowest since March 2007.
Though the bid for Treasurys began overnight in Asia, geopolitical developments in the United Kingdom pushed both global rates and sterling even lower. U.K. Prime Minister Boris Johnson said he would schedule the formal reopening of parliament for Oct. 14 in a move that would limit legislative time before the country’s Brexit deadline and heighten the odds of a no-deal departure.
For a global investor community already on edge about the direction of economic growth, Johnson’s announcement provided little relief and stoked concerns about the country’s economy if it severs ties with its largest trading partner.
The pound fell by 1% to below the $1.22 mark on Wednesday at 9:00 a.m. London time following Johnson’s comments, but slightly pared losses to trade 0.6% down at $1.2211 by late morning. Other yields followed suit, with the 10-year Italian yield falling below 1% for the first time ever; German and French 10-year rates also fell to record lows.
The U.S. Treasury is set to auction $41 billion in 5-year notes.