A significant and highly preferred indicator of a looming financial crisis has made itself known stronger than ever before on Wednesday, August 28.
The US benchmark 30-year bond yield hit its worst level, dropping to as low as 1.907 percent in the morning. This has broken the clincher to a record low in early August at 1.916 percent.
The inversion in the yield curve deteriorated further on the same day, as benchmark yield 10-year Treasury note plunged lower than that of the 2-year note. The movement was significant because, for the bond traders, that indicated a strong recession signal.
For context, the last time a similar inversion trend took place was in December 2005. That was two years before the financial crisis struck followed by seven recessions in the years to follow.
Further, the gap between the 3-month Treasury yield and that of the 10-year note descent to negative 53 points, which was the lowest since March 2007. To highlight, this inversion is the one considered by the Federal Reserve as the more important inversion metric that it relates to the recession.
Global geopolitical issues were blamed for aggravated inversion. On the same day the US 30-year bond yield hit a record low, reports were out that the United Kingdom Prime Minister Boris Johnson announced plans of reopening the parliament by October 14. This would mean that lawmakers would have limited time to decide on the Brexit deadline, stoking fears that a no-deal Brexit would instead take place.
The notable inversion also took place as China denied claims from President Donald Trump that he was willing to restart trade talks. Of course, the ongoing China-US trade war has been the strongest force behind market instability such as this.
As for other recession indicators, market observers also noted the worlds wealthiest have not been spending the way they were in the years before while their savings continue to explode. The rich now spend less on property investments, jewelry, and other luxury ventures like collectible cars and classic arts. In fact, in the U.S., the weakest segment of its economy at present are those billionaires who used to pump millions into the local economy.
There were those who remained optimistic like Calvin Schnure, senior economist at Nareit. The economist note that consumer spending among the middle class remains strong, as well as employment in the labor sector. He said these two economic factors indicate that economic slowdown remained to be manageable.
