Treasury yields continue slide with traders wary of 'curve inversion'

This Market Indicator That Frequently Signals a Recession Just Flashed Red

"It's the what-if scenario". The 10-year Treasury note yield fell about 6 basis points to 2.498% Tuesday, its lowest since September 13, while the spread between 2-and 10-year notes dropped to 0.14%, the flattest level since June 2007, setting the tone for a possible inversion of spreads in the future. That particular inversion has preceded every recession since the late 1970s. One portfolio manager called the inverted yield curve a "harbinger of doom".

Another big recession indicator is the recent weakness in housing. "If twos and tens invert between now and December 18, the Federal Reserve is going to have to take out some of the hikes next year-or they should do it", Joseph Lavorgna, chief USA economist at Natixis, told Reuters.

Gundlach is founder and chief executive of DoubleLine which manages more than $120 billion, according to its website.

LONDON, Dec 5 (Reuters) - Global stocks tumbled to one-week lows on Wednesday, as declines by long-dated US bond yields and a renewal of trade concerns stoked fears of a downturn in the United States, the world's largest economy.

Markets are also bracing for more news on the Brexit front.

Generally, short-term bonds carry lower yields because the investment is considered less risky, whereas longer dated funds should have higher yields to reflect that an investor's money is at more risk as you commit for more time.

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The greenback has enjoyed months of unrivaled performance against its peers but that could be undermined by growing concern about slowing US growth.

Some business sectors like auto and housing are flagging due partly to rising interest rates, while debt-laden companies have raised concerns whether they could keep up with their debt payments as borrowing costs are rising. The swaps market has moved up the timing for when it sees the hiking cycle peaking, toward the end of 2019 or early 2020, a period when the Fed's own projections indicate tightening will still be under way.

Some traders said the dramatic curve flattening may be overdone and may revert if the government's November payrolls report out on Friday were to show solid jobs and wage growth.

However, investors are increasingly concerned by a flattening of the spread between 2-and 10-year Treasuries, a more fundamental benchmark of market health.

Global stocks tumbled on Tuesday as a flattening Treasury yield curve sparked recession warnings, while optimism sharply waned that the United States and China would quickly resolve their trade dispute.

Last year's massive federal tax cut has bolstered business confidence, but trade tension between Washington and major USA trade partners looms as a possible economic drag, analysts said. It has a scarily accurate track record of predicting economic recessions, which in past decades have arrived six months to two years after an inversion.

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