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Morgan Stanley Puts US Economy on Recession Watch Over Bond Yields

Posted Wednesday, May 29, 2019 by
Arslan Butt • 1 min read

According to Morgan Stanley, the US stock market and economic outlook are deteriorating and the risks of a recession are increasing. The main drivers are, unsurprisingly, the trade war with China as well as weak economic data releases in recent times.

The bank quotes weak economic data from April, which was before the recent escalation of trade tensions between US and China, to reinforce its concerns. Several economists are also expecting growth and earnings to slow down in H2 2019. Economists at Morgan Stanley have cut their GDP forecast for H2 2019 from 1.0% to 0.6%, while JP Morgan has cut the Q2 GDP outlook from 2.25% to 1.0%.

Another warning signal about the US economy slowing down is visible in the Treasury yields. The yield on the benchmark 10-year Treasury note fell below than the yield on the 3-month Treasury note. On Tuesday, the yield on the 3-month bill touched 2.361% while that of the 10-year Treasury note was 2.266%.

Investors consider this to be a sign of an impending recession. According to the investment bank, the adjusted yield curve first inverted in November and has continued to remain negative since then.

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