Yesterday (Tuesday) saw the 10-year Treasury note yield curve invert for the first time in three months – which is typically regarded as a signal of an incoming recession. The inversion occurred several times in 2019, but this is the first indicator of its kind since October, once again promoting speculation that an economic recession could be on its way.
The inversion is being attributed to fears over what the impact of the Coronavirus could be, after the number of cases reported soared in China, leading airlines to cancel flights (British Airways has stopped flights to mainland China until March and others have followed suit) and businesses such as Starbucks and McDonalds have closed hundreds of branches in the worst affected regions, warning that the shuttering would have a ‘material’ impact on profits for the year.
While the curve corrected in the course of the day, some experts say that seeing the inversion again is a warning sign. Neuberger Berman’s Thanos Bardas, who is the global co-head of investment grade fixed income, said, “You have the feeling of a fragile global economy that is relying on support from central banks and a situation where lots of risky assets appear overvalued.”
In the last 50 years, the yield curve inversion has only not signalled a recession once – meaning if you’re risk averse and want to optimise your investment portfolio, now is the moment to buy gold.