Treasury yield dip accelerates with recession fears

The 10-year U.S. Treasury yield fell below 1.6% this week as the bond markets rallied on the growing threat of a recession. While this is not uncommon — Treasury rates below fell below 1.5% in 2012 and in 2016 — it's the recent rate of decline that is notable. Since the start of the year, the yield has fallen about 100 basis points, and about 164 points since its previous high in November, including a 27-point drop in the first week of August.

Both the German bund and the Treasury drifted lower during equity markets' runup in most of the first half of the year, counter to the basic logic that yield should be flat to higher amid rising equity markets. The 10-year bund fell below zero in early May. Yields on the Chinese 10-year government bond have taken a more leisurely downward path compared with its American and German counterparts despite the Chinese government moving to devalue its currency against the dollar last week, which would normally result in a rate increase.

The slope of U.S. yield curve as of early trading Wednesday, as measured by the spread between the 2-year and 10-year Treasury yield was nearly flat at 1.5 basis points. The yield on the 10-year was about 1.6%.