UK yield curve inverts for first time since 2008 as global market gloom sets in

By Andy Bruce
LONDON, Aug 14 (Reuters) - Britain's government bond yield
curve inverted on Wednesday for the first time since the global
financial crisis, mirroring a move in the United States where it
is traditionally a sign that some investors think a recession is
nearing.
The yield on the 10-year gilt fell below the
yield on the two-year gilt shortly after 1000 GMT for
the first time since August 2008, according to data from
Refinitiv.
Normally, a yield curve slopes upwards as investors expect
to be compensated for the risk of owning longer-maturity debt.
An inversion - where shorter-dated yields are higher than
longer-dated ones - is sometimes considered a warning of a risk
of recession, especially in the United States.
On Wednesday the U.S. Treasury two- to 10-year yield curve
similarly inverted for the first time since 2007, spurred by
downbeat news on the global economy.
The curve in Britain has inverted before the recessions of
1980/81, 1990/91 and 2008/09. It was also inverted between 1997
and 2001, when the UK economy continued to grow solidly,
although 2001 saw recession elsewhere.
"(The inversion) says we're in a very negative environment,
in financial market terms," said Marc Ostwald, chief economist
at ADM Investor Services, adding that the gloom surrounding the
global economy was possibly overdone.
"The correct question is whether this is the end of the
asset price bubble inflated by (quantitative easing)," Ostwald
said.
Gilt yields were little moved by stronger-than-expected
British inflation data on Thursday, which showed consumer prices
rose by 2.1% in annual terms in July -- exceeding the Bank of
England's 2% target.
However, short sterling interest rate futures sold off
modestly, down around 2 ticks on the day through the 2020
contracts , indicating a slightly lower chance that the
BoE will be forced at some point to cut interest rates.
At 2.1%, July's inflation figure was well above the 1.8%
forecast by the BoE's economists earlier this month.
"There are some signs there that would point to the idea
that maybe the Bank of England has been right to resist the
global tide of 'let's all have rate cuts'," Ostwald said.
Twenty- and 30-year gilt yields fell
to new record lows of 0.907% and 1.057%, down around 8 basis
points each on the day before recovering slightly.
Ten-year gilt yields fell 4 basis points on the
day to 0.45%.
The yield spread between 10-year British and
German government bonds stood at 110 basis points,
little changed on the day.

Sept long gilt future 134.73 (+0.43)
Sept 2019 short sterling 99.24 (-0.01)

Dec 2019 short sterling 99.3 (-0.01)
10-year gilt yield 0.45% (-4 bps)

-------------------KEY MARKET DATA---------------------------
Long Gilt futures Gilt benchmark chain
Short Stg futures Cash market quotes
Deposit rates Sterling cross rates
UK debt speedguide
-------------------KEY MARKET REPORTS--------------------------
Gilts Sterling
Euro Debt Dollar
U.S. Treasuries Debt reports
--------------------GILT STRIPS DATA -------------------------
Gilt strips data All gilt strips
Gilt strips IO Gilt strips PO


(Graphic by Andy Bruce
Editing by Alexandra Hudson)


First Published: 2019-08-14 12:25:01
Updated 2019-08-14 17:01:09


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