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Deutsche Bank: the signs of the recession are observed in the United States. The profitability of 10-year government bonds of the country are at the minimum rate

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Deutsche Bank: the signs of the recession are observed in the United States. The profitability of 10-year government bonds of the country are at the minimum rate

Deutsche Bank: the signs of the recession are observed in the United States. The profitability of 10-year government bonds of the country are at the minimum rate
July 06
14:00 2016

According to the yield curve of the US government bonds, then there is the 60% probability of the recession in the US over the next 12 months, the experts of Deutsche Bank claim.

Spreads between the yields of long-term and short-term US Treasuries suddenly decreased in the last few months, and certain indicators have been the lowest since 2007.

This caused the smoothing of the yield curve, which shows the yield of securities dependence on the term of their repayment, reports the publication The Wall Street Journal.

Deutsche Bank forecasts are based on the estimated difference between the interest rates of three-month and ten-year US Treasuries. Analysts point out that the yield curve of these securities has already had the inverted (reversed) character.

Taking into account historical trends, flat or inverted yield curve preceded the recession in the US. So we can talk about the probability growth of the next downturn in the American economy”, – say the analysts of Deutsche Bank.

However, some experts point out that the importance of the yield curve of government securities as the recession indicator is no longer as great as before. The exceptionally low level of the profitability of short-term bonds, as they believe, made the signal mechanism of the yield curve weaker.

Long-term US Treasuries have been in a large foreign demand now. The yields of short-term securities due to too soft policy of the Central Bank have fallen. Thus, the analysts are concerned about the question whether the factors that are exerting pressure on the yield curve, are connected to the grinding halt of the economic growth.

The yield of the US ten-year government bonds fell to their lowest rates. Investors are now ready to pay extra the Government of Japan for the right to purchase its securities.

The yield of the US Treasuries has fallen below 1.36% per annum on Tuesday. On Wednesday they are being traded with the yield of approximately 1.347%. Market participants no longer expect the rising interest rates by the Federal Reserve System this year.

On Wednesday the yield of 20-year Japanese government bonds fell below zero for the first time. Benchmark ten-year bonds showed an updated minimum rate of the profitability – minus 0.262%, while the rate of government securities of Japan with the maturity of 30 years amounted to just 0.015%.

According to The Wall Street Journal, investors, alarmed by the uncertainty of the effects of the United Kingdom withdrawal from the European Union (Brexit), are seeking refuge in those assets that are considered to be the least risky: government bonds of developed countries, precious metals, safe- haven currencies.

Wednesday was marked by a historic low yield of Australian government bonds – 1.849%. Prior to this, the Central Bank of Australia left its base interest rate unchanged, at unprecedentedly low level of 1.75%, but experts generally expect the rate cut by 25 basis points in August.

On Tuesday the benchmark ten-year bonds of the US, the UK and Germany showed the extremely low yields once more. The yields of all government bonds in Switzerland with maturities up to 50 years inclusively have now become negative.

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