Global stocks drop, bond markets rally as US recession risk grows

Investors on Monday abandoned shares and fled to the safety of bonds as they avoided risk assets due to growing fears of a US recession, which led to a significant drop in global yields, according to Reuters.

The mood is expected to spread across European and US markets, as London’s FTSE futures down 0.3 percent and E-minis for the S&P 500 losing 0.5 percent.

The MSCI index of Asia-Pacific shares outside Japan lost 1.5 percent in a broad sell-off of equities, while Japan’s Nikkei hit a five-week low after dropping 3.1 percent. South Korea’s Kospi index declined 1.7 percent, while Australian shares lost 1.1 percent. Chinese shares were also down with the CSI 300 index losing 1.4 percent.

Global economic concerns grew over the past week as cautious remarks by the US Federal Reserve led to 10-year treasury yields to reach the lowest levels since early 2018. They were 1.9 basis points below 3-month rates after yields inverted for the first time since 2007 on Friday.

Historically, an inverted yield curve – where long-term rates fall below short-term ones – has been a signal of an upcoming recession.

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“The risk of a U.S. recession has risen and is flashing amber and this will keep markets pricing a high chance of the Fed cutting rates,” said London-based NAB strategist Tapas Strickland.