NEW YORK (Reuters) - The spread between three-month Treasury bills and 10-year note yields inverted for the first time since 2007 on Friday and stocks around the world fell after soft U.S. and European data fueled fears of a global economic slowdown following this week’s dovish turn by the U.S. Federal Reserve.
The inverted yield curve is widely understood to be a leading indicator of recession.
Earlier, the 10-year yield had broken below the psychologically significant 2.5 percent level, hitting its lowest since December 2017.
This was after German 10-year bond yields dived below zero for the first time since October 2016 after German data showed manufacturing contracted in March for a third straight month in Europe’s biggest economy.
Factory activity across the euro zone as a whole looked equally dismal, contracting at the fastest pace in nearly six years on a big drop in demand.
Wall Street’s major indexes followed European shares lower and stocks around the world deepened their losses after the inversion occurred in the first half hour of U.S. trading.
“The data looks soft globally, particularly out of Europe. The U.S. yield curve inversion is not positive but we have to see if the U.S. economy stabilizes in the second half of the year,” said Mona Mahajan, U.S. investment strategist at Allianz Global in New York.
“If we get a trade deal in the next few months that could be the beginning of a stabilization. It seems markets have not priced in a Brexit crash out scenario.” ...