US 10-2Y Treasury Yield Beyond -100 Basis Points

Hawkish comments by Federal Reserve Chairman Jerome Powell helped push a closely watched part of the U.S. Treasury yield curve to its deepest inversion since early March, once again putting a spotlight on what many investors consider a recession signal. The US 10-2 year Treasury yield spread widened beyond -100 basis points.

The yield on the 10-year Treasury note edged down from 3.77% to 3.74% while the yield on the 2-year Treasury note edged up from 4.72% to 4.75%. The 3-month T-bill rate gained 7 basis points from 5.23% to 5.30%.

Moreover, the Federal Reserve reduced the amount of assets it holds by $26 billion last week, bringing the size of its balance sheet to $8,362 billion as of 21 June. As a result, it pulled $189 billion out of the financial system since the beginning of the year.

In Europe, buying pressure pushed long-term interest rates lower with the German 10-year Bund yield down 12 basis points from 2.47% to 2.35%. The 10-2 year spread now stands at -76 bps.

Against this backdrop, investment grade corporate bond indexes were mixed. The IBOXX € Liquid Corporates index gained 0.39%, while the IBOXX iShares $ Investment Grade Corporate Bond Index slid 0.11%.

High-yield bond indexes showed more weakness. In Europe, they lost 0.48% (IBOXX € Liquid High Yield Index), while their US counterparts were down 0.88% (Markit iBoxx USD Liquid High Yield Capped Index).

Lastly, emerging debt denominated in local currencies treaded water (-0.05%), while the dollar index gained momentum around 102.90.

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