Stock markets in the United States have dropped sharply after the Treasury yield curve temporarily inverted for the first time in 12 years. The news signals growing investor fears of a recession.
Wall Street was hit with worrying news of another recession on Wednesday after the Dow Jones Industrial Average dropped more than 3%, its worst day of the year.
The news comes after the US Treasury bond yield curve inverted, meaning yields on two-year notes surpassed the 10-year yield. The curve inversion is considered a classic indicator of a looming recession. The last inversion was in 2007, before the Great Recession.
Growing global uncertainty
In the aftermath of the latest Wall Street slide, Asian stocks also took a hit. Tokyo's Nikkei index opened down 2% on Thursday, while Australian stocks fell 1.9%.
Grim economic reports from China and Germany have also driven worries of a global economy in trouble. Germany, Europe's largest economy, reported a second quarter retraction, while China's industrial growth hit a 17-year low in July. The economic slowdown, amid a US-China trade war, Brexit and geopolitical tension around the world, has rattled investors.
Read more: German slowdown is a warning signal
Wednesday's downturn erases gains made the previous day after US President Donald Trump announced he was holding off on his threat of imposing additional tariffs on Chinese products in September.
The Dow fell some 800 points, or 3%, to 25,479.42. The S&P 500 and Nasdaq also dropped around 3%.
Tech stocks and banks led the sell-offs, but the retail industry also took a hit. The market has now been down for three out of the past four days.
An ominous sign
The realignment of Treasury bond yield curve goes against investor logic. Generally, the US government pays out higher interest rates for long-term bonds than shorter ones. When that flips — meaning the yield on the 10-year Treasury note falls below the two-year Treasury note — the "inverted yield curve" occurs.
Investors have been buying up safer government bonds for months amid concern that a poor economy could hamper US growth.
The US yield curve has inverted before every recession for the past 50 years.
dr/kl (Reuters, dpa, AP)