- Investors clamour to the safety of government bonds, yields take a hit
- There is an increased risk of recession
- Too early for BTC to act as a safe haven?
- The yield on the 30-year Treasury bond, which moves inversely to price, went below 2% at 1.941% for the first time ever as investors flock to the safety of US government bonds.
On August 16, the 10-year Treasury notes hit a 3-year low of 1.475% while 2-year Treasury yield was 1.467%, the lowest level since October 2017.
This historic drop in the long term US bond yield comes shortly after the interest rates on 10-year and 2-year Treasuries inverted. The inversion has previously been a reliable indicator of economic recessions.
“The 30-year yield in itself is historic given that it is moving to massive lows but the curve inversion is typically the signal, one of the better signals you can get, that there is an increased risk of recession,” said Bank of America technical strategist Stephen Suttmeier.
US 30-year Treasury bond drops below 2% for the first time in the history
As a result, stocks plunged with the Dow Jones Industrial Average having its worst performance of 2019 and the fourth-largest point drop (800.49 points) of all time.
However, Dow future jumped 250 points on Friday after China and Europe announced plans for additional stimulus to lift their economies.
Debt to Fund Deficit
Meanwhile, a surge in US borrowing in the global debt markets is starting to create concern as Treasury is expected to ramp up the issuance of notes, bonds, and bills to fund the soaring $1 trillion budget deficit.
This deluge of Treasury issues has Wall Street worried about whether there’s enough liquidity in the system to meet the supply.
Gaurav Saroliya, director of macro strategy at Oxford Economics says US dollar liquidity is deteriorating and “reaching a point where it may require drastic action if measures aren’t taken to address it soon.”
Recession Fears Are Back
Chaos is ensuing in the global market as worries grew about the US-China trade war, uncertainty over Brexit and geopolitical tension. Meanwhile, central banks are racing to the bottom with rate cuts.
Now with the yield curve inversion, investors are disturbed as such a bond market move has signaled every US recession in the past 50 years.
“The countdown to a recession has just started,” said Hussein Sayed, the chief market strategist at FXTM, a currency trading platform.
Moreover, Hedge fund titan Ray Dalio said he won’t rule out China weaponizing US Treasury holdings. It’s scary what these countries can do to each other and what that would mean for the world economy, he added.
What Does It Mean For Bitcoin?
It’s hard to say how will Bitcoin fair during the ongoing and upcoming contentious times.
Bitcoin is just a decade old and hasn't experienced a recession yet. Just last month, it went through its first Fed rate cut.
As we saw in the last 10 years, while in some situations Bitcoin acted as a safe haven like earlier this month, other times, it failed to act like one as we saw last week.
Lots of talk about BTC as a safe haven lately. Hasnt acted like that last few days. Why?
Could be crypto specific mkt structure issues. We see those right now
Could also be BTC is strong enough to act as a safe haven to an extent and for certain types of stress, but not all.
— Travis Kling (@Travis_Kling) August 14, 2019
Recently, VC investor Tim Draper who doubled down on his prediction that Bitcoin will hit $250,000 said investors will have to wait a little longer than planned to see it being used as a safe haven asset.
It’s still too early to say if Bitcoin will be used as a hedge against the shaky economic scenario and upcoming recession.
However, a deflationary and decentralized crypto-asset surely holds potential.