The bond market is flashing a big neon caution sign.
In another worrisome sign, the yield on the 30-Year US Treasury fell to a record low Wednesday of about 2.01%.
Typically, investors expect to get paid a higher rate of return when they are lending money for a longer period of time, because the risks are higher.
“Historically speaking, the inversion of that benchmark yield curve measure means that we now must expect a recession anywhere from six-to-18 months from today,” said Tom Essaye, founder of The Sevens Report, an investment research firm, in a note to clients Wednesday.
So investors have continued to plow into bonds even though they are being promised a miniscule rate of return — or in the case of certain bonds in other big developed markets, no return at all. Long-term yields are negative in Japan and Germany. Worries about the global economy’s slowdown have stoked renewed fears of a downturn in the United States, particularly in light of the trade war with China.
President Trump said Tuesday that he was delaying tariffs on certain consumer goods — such as electronics, toys and sneakers — so that US consumers would not be hurt by higher prices during the holiday shopping season.
That’s a sign that the US consumer may be on edge — and it’s clear that investors are nervous about the outlook for the US economy as well.
“The business cycle has entered its final stages and recession risks are elevated,” said Joseph Brusuelas, chief economist with RSM, in a report Wednesday.