Treasury Market Flashes New Warning As Real Yields Go Negative

Feb 13 11:02 2020 Print This Article

It happened before, in 2012-2013, but the US economy muddled through a soft patch. Is it different this time? It’s a question worth pondering as the global economy struggles to model the spreading coronavirus that’s weighing on China and, increasingly, reverberating in economies around the world. The European Commission today, for example, advises that coronavirus is a “key downside risk” for the bloc’s economy.

The Treasury market appears to be pricing in this risk. Notably, real yields for key maturities in inflation-indexed government bonds (TIPS) have slipped into negative terrain lately. From a big-picture perspective, real yields (compensation for holding bonds after adjusting for inflation) tend to be positive and rising in periods when the economic outlook is positive and an expansion is accelerating. By contrast, negative yields imply the opposite.

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The Capital Spectator

CapitalSpectator.com is a finance/investment/economics blog that’s edited by James Picerno. The site’s focus is macroeconomics, the business cycle and portfolio strategy (with an emphasis on asset allocation and related analytics). In late-2009, the Eastern Economics Journal named Picerno as one of the nation’s “top economics bloggers”. Picerno is the author of Dynamic Asset Allocation: Modern Portfolio Theory Updated for the Smart Investor (Bloomberg Press, 2010) and Nowcasting The Business Cycle: A Practical Guide For Spotting Business Cycle Peaks (Beta Publishing, 2014). His articles on finance and economics have appeared in a variety of publications and news outlets over the years, including The Atlantic, Financial Advisor, BankRate.com, HorsesMouth.com, and Bloomberg Briefs: Economics. He also pens a daily economics column for the Saxo Group’s TradingFloor.com web site. Picerno has been writing about investing and macroeconomics since the early 1990s at Bloomberg, Dow Jones and other media groups before becoming an independent writer/analyst in 2008. He also offers consulting services on asset allocation and portfolio strategy, the US business cycle, and related data analytics in R and Excel.

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