What’s Going On Here?
The gap between what long- and short-term government bonds pay investors has inverted more widely, potentially foretelling recession.

(The gap between what long- and short-term government bonds indicates the spread rate spread. A small spread means interests rates are expected to decrease, which lowers the economic activities.)

What Does This Mean?
Yields on long-term government bonds around the world are at their lowest levels in years. Normally, investors demand a higher return on US 10-year bonds than 3-month ones, but Wednesday saw the inversion reach its widest point since 2007. Bond investors may be predicting an economic slowdown.

Bonds are in the headlines for other reasons: financial services firm Morningstar agreed to acquire Canadian credit rating agency DBRS for $670 million late on Wednesday, which will give Morningstar 2% of the market.

Why Should I Care?
For markets: Independent reviews are the best reviews.
DBRS have faced increased scrutiny since the last financial crisis. Morningstar thinks more can be done: to show the fund ratings business success of DBRS in the bonds space.

Zooming out: Investors pay attention to ratings.
Recession fears have caused some investors to withdraw their money from higher-risk stock market funds. While there’s usually a two-year gap between bond yield inversions and recession, the fund management industry could be in for a few more bumps before then.

Content source: Finimize. (2019) Bonds Take A Turn. [Online] Available from: https://www.finimize.com/wp/news/bonds-take-turn/ [Accessed 31st May 2019].