Global bonds are now going down the same road as their U.S. counterparts, forecasting approaching recession. This conclusion can be drawn from the gauge measuring the worldwide yield curve, which has recently inverted for the first time in about two decades.
The average yield on 10-year debt has become lower than of 1-3 year securities, as shown by Bloomberg Global Aggregate bond sub-indexes. According to data for the past two decades, this is an exceptional situation, as nothing like that has been registered over the given time period.
The yield-curve inversion is a typical recession indicator because investors start to divert cash to longer-term bonds due to pessimistic sentiment concerning the future prospects. Concerns over the economic situation are getting stronger, as central banks of the largest world economies continue monetary tightening to hold back growing consumer prices.
As it was stated by Prashant Newnaha, a rates strategist at TD Securities Inc. in Singapore, central banks of many countries are now restrained by inflation levels, and they are likely to continue keeping cash rates in the restrictive zone. According to his words, this will be a key factor for curve flattening.
The ongoing inversion of the global yield curve is linked to a process of bonds rebounding on economic slowdown, which might cause financial authorities to put a brake on rate hiking or even end it up.