Treasury yields within whisker of inversion
By Jennifer Hughes in New York, Paul J Davies in London and David Turner in Tokyo
Thu Dec 22, 2:45 PM ET
The US Treasury yield curve compressed to its flattest in five years on Thursday with the difference between two and 10-year yields at less than 4 basis points and within a whisker of inversion.
An inverted yield curve is rare and is traditionally held to be a recession signal, although this time a number of economists, including Alan Greenspan, Federal Reserve chairman, believe it might be caused by abnormal factors that do not suggest a recession.
Traders warned against reading too much into big price moves with activity now expected to remain extremely light until next year.
By late morning in New York, yields on two-year notes were down 4.2bp at 4.402 per cent. Ten-year yields were off 5.8bp at 4.438 per cent, helped by tame inflation data.
UK gilts were underpinned by rate cut hopes and yields fell after data showed subdued growth in the third-quarter and a record current account deficit. The two-year gilt saw its yield slip 3bp to 4.194 per cent, while the yield on the 10-year fell 4.3bp to 4.158 per cent.
Thin markets also exacerbated moves in the eurozone, where Germany's two-year Schatz added 10.6bp to 2.861 per cent after regional inflation data triggered speculation that the European Central Bank would have to raise rates again in the new year.
However, the 10-year Bund yield was unchanged at 3.351 per cent.
Japanese government bond markets were thin ahead of a national holiday today, and the yield on the benchmark Japanese government 10-year bond rose 0.5bp to 1.550 per cent as traders conducted pre-holiday adjustments.
Copyright © 2005 The Financial Times Limited
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