Traders in the Asia-Pacific region are braced for a turbulent day after the inverted US bond yield curve sent alarm bells ringing around the world
A major factor in yesterday’s selloff was the inverted US bond yield curve – not helped by recession warnings from Germany and China. It is a very predictor of recession and preceded all six of the previous US recessions.
It’s not often it becomes a topic for everyday conversation. So in case you get stuck next to the water cooler and feel like making some small talk, here’s a quick explainer.
But I am skeptical of this chart showing banks tightening loan standards when the yield curve inverting. Did banks tighten because of upside down interest rates or because they saw the same things bond traders saw that inverted the curve? pic.twitter.com/CIkS171rIr
p class=”block-time published-time”>
In Japan the Nikkei index is down 2.1% this morning. Stocks are suffering amid the fears of a global downturn but are also being pushed down because the value of the yen is rising. The Japanese currency is a “safe haven” asset and goes up in times of crisis – rather like gold and the Swiss franc which are both also up today.
A higher yen is bad news for Japan’s export-reliant big manugfacturers, hence the falling stock market.
When volatility rises, dollar/yen becomes strongly correlated with [US] treasury yields, so the currency pair has more room to fall. I expect other safe havens to rise. The mood is downbeat, because of the trade war and bad economic data.