Summary for the 28th of August -Declining treasury yields


Recent auctions of the 2 years US treasury notes have been keeping the 2 year treasury yield from declining. Similar to how a strong demand increases the bond price and decreases the bond yield, a strong supply would decrease the bond price and increase the bond yield. Due to this, the 2 year treasury yield has risen more than the 10 year treasury yield. This makes the yield curve to invert. Inverted yield curve has been a reliable indicator for economic recessions.

Italy’s 10 years treasury yield has also declined. Bond yield decreases when there is high demand for treasury bonds. Investors in the financial markets tend to seek assets in safe haven countries, such as treasury bonds of Germany, France and the US, when there are uncertainty in the market , thus making the price of treasury bonds to rise and the treasury yield to fall. Lately, bond yield of countries that usually are not considered as safe haven, like Greece, Italy and Portugal have been falling more sharply than for safe haven countries. This might be due to those countries’ bond yields still are at a high level, thus the fall is stronger for these countries.

Still this is quite unusual, because the yield for non safe haven countries doesn’t usually fall during economic uncertainties. In 2015, when the financial markets had anticipated a high probability of Greece to default on their debt, Greece 10 year treasury bond yield was at 18%, in 2012, the yield was at 36%. Today the yield is only 1.8%. This shows that there is high demand for treasury bond due to more and more bond yield have become negative.

Indices for 28th  of August
Dow: -0.5% (27th of August)
S&P 500: -0.3% (27th of August)
Nasdaq: -0.3% (27th  of August)
Nikkei: +0.2%  (28th of August)
Chinese indices: -0.4% (28th  of August)
STOXX Europe 600 Index: -0.20% (28th of August)

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