Yield curve inverts for first time in a decade


But when investors are anxious that growth will fall off sharply, perhaps as a result of the Federal Reserve pushing short-term rates higher, they're willing to accept less in interest for a Treasury maturing far in the future.

However, analysts said as traders grew anxious about sagging USA growth, longer-dated Treasury bond yields have been sharply weighed down. The euro was 0.17 percent higher.

Australian stocks lost 1 percent, pressured by global losses.

The Dow retreated 3.1 percent and the Nasdaq sank 3.8 percent on Tuesday.

Following Wall Street's overnight tumble, S&P e-mini futures nudged up 0.4 percent in Asian trade on Wednesday.

So far, 10-year yields are clinging to an 11-basis-point margin over the two-year, although it was the smallest one in over a decade.

These were the first parts of the Treasury yield curve to invert since the financial crisis, excluding very short-dated debt.

The dollar, which started the week on a weak footing as the apparent thaw in trade tensions between the USA and China cooled demand for the safe-haven currency, extended its fall as investors anxious about the inversion of the short end of the US yield curve in bond markets.

"The market decline in the US overnight and the flattening of the yield curve reflect that economic growth momentum is taking over as the primary concern for investors, even as the latest ISM manufacturing data is holding up well", wrote Tai Hui, market strategist at J.P. Morgan Asset Management.

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The Treasury "yield curve" can be seen as a proxy for investor sentiment on the direction of the economy.

The yield curve is now at its flattest level since before the past recession in view of more dovish comments from the Federal Reserve.

There have also been false positives in the past, where the yield curve has inverted but no recession has followed, such as in 1966.

President Donald Trump suggested Tuesday that he could extend a 90-day truce in his trade war with China, while his top White House economic adviser backtracked from the president's announcement that Beijing had agreed to reduce tariffs on US -made cars. "That said, it is true that the economic outlook is murkier than before", said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management. Adding to the risk aversion was news that U.K. Prime Minister Theresa May's push to avoid a so-called "hard Brexit" may be at risk.

The ministry said the Chinese side would work to implement specific issues agreed upon as quickly as possible, and was confident they would be implemented.

This has set off a debate among bond investors as to the meaning of the inversion, with one camp arguing it is mainly symbolic while others claiming it indicates a recession is near.

The dollar index, which measures the greenback against six major peers, was down 0.07 per cent to 96.9680.

On Tuesday, the greenback shed almost 0.8 percent against the yen, which acts as a safe haven in times of geopolitical and financial turmoil as Japan is the world's biggest creditor nation.