LONDON, March 28 (Reuters) – The U.S. five- and 30-year bond yield curve inverted on Monday for the first time since 2006, suggesting some investors are pricing in an economic slowdown in the United States.
After parts of the yield curve, namely the five-year-ten-year segment and the three-year-ten-year segment already inverted last week, the shift in the government bond spread to five years and 30 years in negative territory is fueling fears about the unfavorable impact on growth of the more restrictive orientation of the Federal Reserve (Fed).
“That’s exactly what the bond market is pricing: that the Fed’s policy response is going to be a major drag on economic growth,” said Peter Chatwell, head of multi-asset strategy at Mizuho Bank.
The spread between the yield of two-year Treasuries and that of 30-year securities fell below zero for the first time since February 2006, at -3.5 basis points. It was at 53.5 basis points at the start of the month.
The two-year hit 2.4140%, its highest since April 2019.
The spread between five- and ten-year yields fell to about -13 basis points, sinking further into negative territory.
Bank of America (BofA) and Goldman Sachs last week joined a growing number of major investment banks betting on an acceleration in the rise in US rates this year, after statements by Fed Chairman Jerome Powell, who does not rule out increases of 50 basis points in a context of galloping inflation.
“There is a real concern that the monetary tightening needed to bring inflation back to target, particularly in the United States, could trigger an economic slowdown at best or a full-blown recession at worst,” said Stuart Cole, Chief Macroeconomist at Equiti Capital. (Dhara Ranasinghe report, French version Laetitia Volga, edited by Jean-Michel Bélot)