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Yield Curve Inverts on Virus Fears | Dollar Stronger as Focus Turns to Fed

Published January 28, 2020
  • US Treasury prices rose on Tuesday morning as the virus outbreak fears continue to drive demand for safe-haven assets.  The strong demand for longer-term government debt caused an inversion in the US yield curve that saw 10-year bond yields fall below 3-month yields for the first time since October 2019.  An inverted yield curve is closely watched by markets since it has been a dependable indicator of US recessions in the past, although the curve can invert and reinvert multiple times before recession sets in.
  • The US dollar is stronger today despite some disappointing data this morning.  Headline Durable Goods came in strong, but business investment missed expectations and contracted 0.9%.  With expectations of more Federal Reserve rate cuts by the end of 2020, all eyes now turn to Jerome Powell tomorrow for the latest Fed rate decision and economic outlook.  While the Fed is expected to hold rates tomorrow, recent developments are fueling expectations of further rate cuts this year.