The U.S. Treasury yield curve fell deeper into inversion territory after weak economic data from China and Germany highlighted a slowdown in global growth.

The sharp rally in long-term government bonds briefly inverted a key measure of the yield curve’s slope for the first time since 2007.

Yield curve inverts between 2 year and 10 year yield.

The spread between the 2-year note and the 10-year note temporarily fell to a negative 1 basis point. An inversion of this measure has often preceded an economic downturn. This signal often occurs when tighter monetary policy is slowing growth.

Overnight, the data released on China’s economy showed industrial production grew at its slowest pace since January 2002, increasing 4.8% in July YoY versus a 6.3% increase in June. Germany’s economy contracted 0.1% in the second quarter of 2019 as the U.S – China trade war hit global manufacturing supply lines and the country’s export-dependent industries.

The risk-on move in markets on August 13, 2019, from Trump’s partial tariff delay, lasted about 12 hours before Treasuries completely reversed the selloff and we find yields and the curve once again hitting new extremes.

The important thing to remember is that a lot of reporting on the yield curve is fear hype in order to sell subscriptions. In reality, the entire yield curve is still in a normal shape and is not inverted yet. Once the entire yield curve inverts, we have about another 6 to 12 months on average before the stock market goes into a Bear market and the economy goes into a recession.