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Pimco says curve inversion may be unreliable recession signal

The U.S. 10-year yield briefly dropped below its two-year equivalent on Tuesday for the first time since 2019, crossing at a level of about 2.39%.

March 30, 2022 / 02:31 PM IST
A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Aug. 23, 2021. U.S. futures rose Monday along with stocks in Europe as concerns about China's wealth crackdown faded and traders took advantage of last week's selloff to pick up equities at favorable valuations. Bonds declined as demand for havens eased. Photographer: Michael Nagle/Bloomberg

A trader works on the floor of the New York Stock Exchange (NYSE) in New York, U.S., on Monday, Aug. 23, 2021. U.S. futures rose Monday along with stocks in Europe as concerns about China's wealth crackdown faded and traders took advantage of last week's selloff to pick up equities at favorable valuations. Bonds declined as demand for havens eased. Photographer: Michael Nagle/Bloomberg

The inversion of another part of the U.S. yield curve is leading to growing calls about the likelihood of a U.S. recession. Bond giant Pimco says those concerns may be premature.

“There’s reason to believe that this time around, yield curve inversion may not be as good of an indicator as it has been in the past, particularly given the enormous amount of quantitative easing undertaken by global central banks,” said Erin Browne, a fund manager at Pacific Investment Management Co. in Newport Beach, California, speaking in an interview on Bloomberg Television.

The U.S. 10-year yield briefly dropped below its two-year equivalent on Tuesday for the first time since 2019, crossing at a level of about 2.39%. The inversion is the latest in a series beginning in October, when 20-year yields topped 30-year ones. The spread between five- and 30-year Treasuries also turned negative this week, something that hasn’t happened since 2006.

The shape of the yield curve is a key metric that markets watch on, as it can have an impact on a range of asset prices and has historically been a signal of the economic outlook. Yield curves normally slope upward, so an inversion is taken to mean investors are more pessimistic about the long-term outlook and expect that a recession is nearing.