How anxious should the Indian market be on US Treasury yield inversion?

How anxious should the Indian market be on US Treasury yield inversion?

Fed funds rate futures are now fully factoring in a rate cut later this year, with about an 80 per cent chance of a move priced in by September.

Former US Federal Reserve chair Janet Yellen said on March 25 the US Treasury yield curve may signal the need to cut interest rates at some point, but it does not signal a recession. "Increasing amounts of negatively yielding bonds overseas has also been supportive of the USA bond market".

"One is an average of about the ten year yield". "Central banks have turned dovish in recent months owing to evidence of a slowing global economy". "Haven flows are also finding their way here".

The Treasury Department will sell $113 billion in coupon-bearing supply this week, including $40 billion in two-year notes on Tuesday, $41 billion in five-year notes on Wednesday and $32 billion in seven-year notes on Thursday. The euro zone bank stocks index was up 2.4 percent after Reuters reported the ECB was studying options to lower the charge banks pay on some of their excess cash as a possible way to offset the side-effects of its ultra-easy policy. Yields on 10-year bunds fell three basis points to around minus 0.05 percent, while those on New Zealand notes fell to a fresh low of 1.75 percent intraday.

Marty Mitchell, an independent strategist, wrote in his daily newsletter to clients, said that increasing amounts of negatively yielding bonds outside America have been supportive of the US market and there are also haven flows into Treasuries.

Adding to the downside market risks, the analysts don't see the Federal Reserve cutting interest rates until it is crystal clear that the economy is in trouble.

Japan's Nikkei jumped 2.1 per cent after recording its biggest drop since late December on Monday, India jumped over 1 per cent whereas China's blue-chip CSI300 index dropped more than 1 per cent as trade war worries remained.

A closely watched segment of the U.S.

The yield on Australia's benchmark 10-year note, which moves inversely to its price, fell to its record low of 1.75 percent on Tuesday, now floating 3-1/2 basis points lower at 1.773 percent, the yield on the long-term 30-year bond also plunged 3 basis points to 2.422 percent and the yield on short-term 2-year too traded 2-1/2 basis points lower at 1.465 percent by 03:30GMT. In the lead-up to the economic downturn that began in December 2007, this part of the curve initially dipped below zero about 23 months before the recession started.

"Market participants believe that if we were to go into a recession the reaction function could be that quantitative easing programs begin again, with central banks going into long-duration bonds", said Thomas Wacker, head of credit in the chief investment office of UBS Global Wealth Management, which oversees about $2 trillion.

"The US yield curve continues to invert", said Michael Every, Hong Kong-based senior Asia-Pacific strategist at Rabobank.

The Fed announced last week that it would end its balance sheet run-off beginning in October, sooner than most strategists had predicted.

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