Skip to main content
  • Register
  • Help
  • Contact us
  • Log out of your HL account

JPMorgan says yield-curve message distorted but risk remains

'U.S. recession risks are elevated in our mind by the inversion at the front end of U.S. money market curves which are less distorted by foreign flows,' the strategists wrote.

Article originally published by Bloomberg. Hargreaves Lansdown is not reponsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

Distortions in the Treasury yield curve mean it’s not necessarily signaling the risk of recession, according to JPMorgan Chase & Co. -- but the money-market curve still is.

A surge in the stockpile of negative-yielding debt across the world has warped the pricing of U.S. duration and credit risk as foreign investors are forced into Treasuries and U.S. corporate bonds, JPMorgan strategists including Nikolaos Panigirtzoglou wrote in a note Friday. That means the U.S. sovereign and credit-spread yield curves are losing their information content, making the less-affected money-market curve a better place to look for an economic signal, they said.

“U.S. recession risks are elevated in our mind by the inversion at the front end of U.S. money market curves which are less distorted by foreign flows,” the strategists wrote. Treasury inversions are “less of a reflection of U.S. recession risks and more of a reflection of the desperation for yield by foreign investors flocking into U.S. dollar-denominated bonds as bond yields turned more negative in Europe and Japan.”

Negative-yielding debt hit a record $16 trillion last week after the key U.S. 2-year and 10-year yield curve inverted for the first time 2007 -- a move often considered a harbinger of an economic downturn. Money-market traders are expecting an increasing dovish policy path from the Federal Reserve, with Eurodollar contracts pricing in a cutting cycle until the end of 2020.

©2019 Bloomberg L.P. This article was written by Joanna Ossinger from Bloomberg and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

Article originally published by Bloomberg. Hargreaves Lansdown is not reponsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

Free news email alerts

  • Daily and weekly news
  • Major Publishers
Register