The most obvious and benign explanation is that investors see $15.8 trillion in negative-yielding debt worldwide, plus mounting geopolitical risks and an undercurrent of weakening economic data, and conclude that the longest-dated Treasuries are a way to lock in maximum yield and safety. That certainly seems plausible. On top of that, market depth is weak even by August standards, which might be exacerbating some of the moves.
As always, breaking records is one thing, but following through in the days ahead is arguably even more critical. Once a key level is broken in the Treasuries market, there’s usually high trading volume in the liquid futures market amid a rush to hedge or close positions, and Wednesday was no exception. Bloomberg News’s Edward Bolingbroke reported that some “real money” investors stepped in to sell once the 30-year yield hurtled toward 2%. So there might yet be some resistance.
The inverted curve, both in the U.S. and U.K., will undoubtedly stoke questions about the near-term risk of a recession and put the pressure on Fed officials and other global central bankers to swiftly ease monetary policy. But even if the American economy avoids a downturn, a low-growth, low-yielding world for decades is an equally scary proposition.
Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.