A closely watched part of the U.S. bond market that is widely viewed as a recess...
NEW YORK - A closely watched part of the U.S. bond market that is widely viewed as a recession indicator has recently stopped flashing red. But investors and economists say the economy is still not in the clear.
But there are also some technical reasons for the move, leading some experts to caution that the economy may still be fragile. It’s not just the upside-down yields that spook investors, it’s what happens next. The yield curve has inverted before every U.S. recession since 1955, although sometimes the inversion happens a few years before the start of a downturn.
U.S. and China trade negotiators said that day that they are working on a “Phase 1” trade deal, increasing the chances that tensions between the world’s two largest economies could improve. Days later, British Prime Minister Boris Johnson introduced a Brexit deal package with the European Union, which still needs parliament approval.“Recent developments have served to lift the fog of uncertainty,” said Mark Cabana, head of U.S. rates strategy at Bank of America Merrill Lynch.
That drop on the short end, combined with a rise in yields on the long end, caused the yield curve to steepen, said Tendayi Kapfidze, chief economist for LendingTree. The shift is a reminder that movements in the yield curve can happen for reasons unrelated to economic outlooks, he said. After inverting during the summer of 2006, the yield curve reverted back to positive during the spring of 2007 and stayed that way throughout the Great Recession. The yield curve also steepened shortly before the start of the 2001 recession.
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