May 13, 2019 / 9:23 AM / 2 months ago

UPDATE 1-U.S. yield curve between 3-month and 10-year rates inverts again

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By Sujata Rao

May 13 (Reuters) - The U.S. Treasury bond yield curve between three-month and 10-year rates inverted on Monday for the second time in under a week as escalating trade tensions raised concern that the U.S. economy could tip into recession.

The yield on the shorter maturity bill rose above 10-year yields to trade at 2.45% by 0900 GMT while 10-year rates slipped three basis points to a six-week low of 2.42%

In normal circumstances, a yield curve has an upward slope because investors expect to be compensated for taking on the risk of owning longer-maturity debt. An inversion - when shorter-dated yields are higher than longer-dated ones - is considered a warning of looming recession.

Investors are bracing for threatened “counter-measures” from China in retaliation for Washington’s tariff increase on Friday on $200 billion worth of Chinese goods. The tariff spat is expected to hit the U.S. economy which is seeing the impact of fiscal stimulus fade.

“Recession risks have definitely increased, driven by the uncertainty around China and the United States,” said Justin Onuekwusi, portfolio manager at Legal & General Investment Management.

The U.S. curve has inverted before each recession in the past 50 years. It offered a false signal just once in that time.

The 3-month/10-year curve inverted last Thursday for the first time since March and investors will wait to see if the inversion is sustained.

“The yield curve is only one indicator and it’s difficult to establish if it’s a leading indicator,” Onuekwusi added.

Reporting by Sujata Rao; Editing by Dhara Ranasinghe and Janet Lawrence

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