A closely watched segment of the Treasury Yield Curve on Friday managed to turn negative for the very first time since the crisis more than 10 years ago. Hence, it has undermined the concern with regard to a possible economic downturn along with the prospect that the Federal Reserve would need to cut down the interest rates. On Friday, the interval between the 3-month and 10-year yields had vanished as the increase in buying went on to push rates in the long-end, quite sharply lower. Inversion of the Treasury Yield Curve is widely regarded as an indication of a recession in the United States.
On Wednesday, the policy makers of the US Central Bank had lowered their projections related to growth as well as their outlook on the interest rate. Majority of the officials are now contemplating that there would be no interest rate hikes this year. Now, this is down from a median call of two hikes, which they had taken up during their meeting back in the month of December last year. Traders had taken that stance from the policymakers as their indication to get into the position for quite an easing cycle of Fed. They had looked for a cut by the end of next year and the possibility of a one or two reductions during this year.
Kathy Jones of Charles Schwab & Co, who is a chief fixed-income strategist, said that it seems as if the worries regarding global downturn are confirmed and the market has started to consider the easing of Fed, with the possibility of recession looming large. The 3-month to a 10-year curve is widely recognized as an indicator, which shows that the economy is just two years away from recession.
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