· The yield on the benchmark 10-year Treasury note fell on Monday to its lowest level since December 2017 as fixed-income investors continued to worry about global growth and a potential deceleration in the U.S. economy.
Those fears kept the Treasury yield curve inverted during the session, with the yield on the 3-month bill above that of the 10-year note.The short-term rate first exceed that of several longer-term securities last week in a phenomenon known as inversion and viewed by many as a recession predictor.
The yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at 2.388 percent, its lowest since December 2017. The yield on the 2-year Treasury note was also lower at 2.233 percent while the 3-month yield was at 2.454 percent.
That appears to be the case now, days after the Federal Reserve tempered U.S. growth forecast. The central bank added last Wednesday that it plans to cease its program of reducing the bonds and mortgage-backed securities on its balance sheet.
· The euro gained on Monday as a stronger-than-forecast German business confidence survey allayed some fears about a recession and pulled the safe-haven yen from a six-week high against the dollar.
Financial markets around the globe were roiled on Friday, stemming from anxiety about an economic downturn after the U.S. yield curve inverted, with the 10-year yield dropping below the three-month bill rate. Those fears stoked a dumping of stocks and other growth-oriented assets and a rush into the yen, gold, U.S. and German government debt and other perceived low-risk investments.
A yield curve inversion has preceded every U.S. recession in the past 50 years.
· Trader sentiment stabilized after Germany's IFO Institute said its business climate index rose to 99.6, beating a consensus forecast of 98.5 and ending six consecutive months of decline. The IFO data briefly lifted German 10-year yields into positive territory and helped European shares.
They also buoyed the euro, which rose 0.2 percent to a session-high of $1.13315.
The dollar was little changed at 109.935 yen after the yen hit a six-week high of 109.7 per dollar earlier on Monday.
The U.S. dollar index, which tracks the greenback against a basket of its peers, was at 96.517 after slipping from highs above 96.6 yesterday.
· Janet Yellen, the former chair of the Federal Reserve, said Monday the recent triggering of a recession indicator in the U.S. bond markets could signal the need for an interest rate cut and not a prolonged economic downturn.
"The U.S. is certainly experiencing a slowing of growth," she said. The economy expanded 3.1 percent last year but the Fed's most recent outlook is for growth of 2.1 percent this year, which Yellen said is close to potential.
"So that's not a dangerous situation," she said. "So, yes, growth is slowing, but I don't see it slowing to a level that will cause a recession."
· The Federal Reserve should consider raising the proportion of short-term Treasury bonds it holds to give itself more options to respond to economic pullbacks, a top policy maker said on Tuesday.
In remarks to be delivered in Hong Kong, Eric Rosengren, president of the Federal Reserve Bank of Boston, offered a hard-line defense for one of policy makers’ most controversial responses to the 2008 global financial crisis: bond buying.
He is the third Fed policymaker in two days to weigh in on exactly what bonds the Fed should keep and why, following speeches by his counterparts in Chicago and Philadelphia. Rosengren, who is a voter this year on the Fed’s policy-setting committee, said holding shorter-term bonds could help the U.S. central bank in a future crisis by giving officials a security they could exchange for longer-term bonds to push those rates down without expanding their balance sheet.
Interest rates, he said, would likely hit their lower limits near zero percent again during a recession and bond buying would be an option. The Fed currently targets short-term rates between 2.25 and 2.5 percent.
· Lawmakers in the U.K. have voted to effectively rip control of the Brexit process away from Theresa May’s ailing government.
Working late into Monday night, MPs (Members of Parliament) voted to pass an amendment proposed by a cross-party group of lawmakers in the hope of finding a Brexit solution. The measure passed with 329 votes in favor of the proposal and 302 voting against.
The passing of the “Letwin amendment” looks to change the rules of Parliament, allowing lawmakers to set a timetable for debate and subsequent votes on alternative outcomes for Brexit. On Wednesday this week, MPs are now expected to control business in the House of Commons in order to hold the series of votes on different Brexit outcomes. This takes the power away from the government and allows MPs to put forward business motions relating to the U.K.’s departure from the EU.
British lawmakers wrested control of the parliamentary agenda from the government for a day in a highly unusual bid to find a way through the Brexit impasse after Prime Minister Theresa May’s EU divorce deal was rejected again.
· Oil prices were mixed on Monday as investors weighed concerns of a slowdown in global economic growth against the prospect of tighter crude supply and lower U.S. inventories.
Brent crude oil futures climbed 23 cents to $67.26 a barrel, while U.S. crude settled 0.4 percent lower at $58.82 per barrel.
Reference: CNBC
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