The bond market is flashing a big neon caution sign.
Investors have poured money into the safety of US bonds as the global economy has slowed. But they’ve been investing more in long-term bonds than short-term bonds, sending long-term yields lower. Last week, the yield on the 30-Year US Treasury fell below 2% for the first time in history.
In another worrisome sign, the yield on the 30-Year US Treasury fell to a record low Wednesday of about 2.01%.
For sure, what’s happening in the bond market is significant.
Typically, investors expect to get paid a higher rate of return when they are lending money for a longer period of time, because the risks are higher.
“Historically speaking, the inversion of that benchmark yield curve measure means that we now must expect a recession anywhere from six-to-18 months from today,” said Tom Essaye, founder of The Sevens Report, an investment research firm, in a note to clients Wednesday.
The plunge in longer-term yields like the 30-Year are also a symptom of investor anxiety. Bond yields fall in the opposite direction of prices. In other words, they tumble when investors are buying bonds.
Investors have continued to plow into bonds even though they are being promised a miniscule rate of return — or in the case of certain bonds in other big developed markets, no return at all. Germany sold 30-year debt at a negative yield for the first time this week, showing how anxious investors are.