Tough Times Ahead? Bond Investors Think So

The Fed walked up short-term interest rates in the U.S. from 2016 through 2018, dragging interest on savings and checking accounts higher.  But the trend ended last December, and it looks like the next move is lower.

Judging by what’s happening in Europe, rates could be much lower for a long time.

Almost 50% of the European bonds on the trading platform Tradeweb yield less than zero, showing that investors were willing to guarantee a slight loss on their funds simply to have a place to park the assets during what could be difficult times.

Interest rates are falling around the world as bond investors grow pessimistic about economic growth, driven by weak GDP figures and trade friction.

The yield on the U.S. Treasury 10-year bond fell below 2.2% this week, below the yield on short-term bonds, causing the yield curve to invert, which historically has been a signal of a coming recession.

Tim Graf, chief macro strategist at State Street Global Advisors in London, said:

“Bond markets are telling you that disinflation is coming. It speaks to a situation where markets are discounting more of a global slowdown than maybe we had previously thought.”

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