Long-term Treasuries rally with downturn fears clouding sentiment

US government debt maturing decades from now rallied anew on Wednesday in a fresh sign of deepening investor angst over the global economy.

The 30-year Treasury yield dropped as much as 6 basis points to a historic low of 1.907 per cent, with its 10-year counterpart down 3.2 bps at 1.458 per cent.

Wednesday’s fall in yields signals investors are shifting into longer-term US government debt — generally seen as an indication of expectations for weaker inflation and slower growth in the years ahead.

Treasuries at the shorter end of the curve, including those maturing in two years, saw a slimmer fall in yield. The shift caused a further inversion of key portions of the US yield curve in a sign that may sharpen market worries about a looming recession.

The two-year Treasury yield was recently 6 bps above that of the 10-year Treasury, marking the deepest inversion of the yield curve since early 2007.

The inversion of the yield curve is seen by investors as a powerful indicator of a that a US downturn may be on the horizon. “The inversion is in danger of being locked in,” said Jim Reid, a research strategist at Deutsche Bank.

Trading in the bond market ricocheted to European equities bourses. The continent-wide Stoxx 600 index slipped 0.32 per cent in morning dealings, with bourses in Germany and France down around 0.5 per cent. Futures tracking Wall Street’s S&P 500 index cut their gains to 0.2 per cent.

In Asia, both the Topix index in Japan and Hong Kong’s Hang Seng edged up 0.1 per cent while Australia’s S&P/ASX rose 0.4 per cent as miners gained. Over in mainland China, the CSI 300 was down 0.4 per cent.

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