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- Former Federal Reserve Chair Alan Greenspan told Bloomberg Tuesday he wouldn’t be surprised to see US Treasury bonds hit negative yields, adding that such a move wouldn’t be all that significant.
- “There’s no barrier” for the bonds to hit such rates, and “zero has no meaning, besides being a certain level,” Greenspan said.
- Germany’s entire bond curve recently fell below the 0% threshold, and other economies have seen their treasury yields plummet as the US-China trade war and slowing global economy send investors away from stocks and into bonds.
- Watch US bonds trade live here.
Escalation of the US-China trade war, slashed interest rates around the world, and slowing global economies have prompted investors to flee stock markets and move to less volatile assets, including Treasury bonds. Greenspan told Bloomberg on Tuesday.
“There is international arbitrage going on in the bond market that is helping drive long-term Treasury yields lower. There is no barrier for US Treasury yields going below zero,” Greenspan said. “Zero has no meaning, besides being a certain level.”
Negative bond yields buck the asset’s typical nature, as such rates essentially pay investors to borrow money. The anomaly is increasingly prevalent as global economies face new hurdles. Germany’s entire yield curve recently dropped below 0% on poor economic news, and 10-year bond yields in Spain and Portugal are close to with going negative as well.
The US 30-year yield hit record lows Wednesday, and the yield for the US 2-year bond now stands above the 10-year yield. This “2-10” yield curve inversion is regarded as one of the most dependable indicators of an upcoming recession, as every recession in the last 50 years was preceded by such a trend.
Investors fear current Fed chair Jerome Powell is lagging behind the economy’s slowing pace and cutting interest rates too slowly. Powell deemed the July rate cut a “mid-cycle adjustment,” upsetting Wall Street analysts who hoped for a hint at additional cuts-to-come. Markets fell as much as 1.8% on the news.
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