{"id":18748,"date":"2019-03-22T17:48:04","date_gmt":"2019-03-23T01:48:04","guid":{"rendered":"https:\/\/associatednews.info\/content\/stocks-indexes-drop-as-bond-market-flashes-recession-warning\/"},"modified":"2019-03-22T17:48:04","modified_gmt":"2019-03-23T01:48:04","slug":"stocks-indexes-drop-as-bond-market-flashes-recession-warning","status":"publish","type":"post","link":"https:\/\/associatednews.info\/content\/stocks-indexes-drop-as-bond-market-flashes-recession-warning\/","title":{"rendered":"Stocks Indexes Drop As Bond Market Flashes Recession Warning"},"content":{"rendered":"

By Scott Horsley<\/a><\/span> <\/p>\n

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\n Major U.S. stock indexes fell Friday as short-term Treasury yields exceeded those on long-term bonds, in what some analysts consider a sign that a recession may be coming.<\/p>\n

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Spencer Platt\/Getty Images<\/p>\n

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Spencer Platt\/Getty Images<\/p>\n

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The stock market tumbled Friday as investors digested an ominous warning sign: Interest rates on long-term government debt fell below the rate on short-term bills. That’s often a signal that a recession is on the horizon.<\/p>\n

The Dow Jones Industrial Average fell more than 460 points Friday, or about 1.8 percent. The broader S&P 500 index fell 1.9 percent.<\/p>\n

Ordinarily, the yield on long-term debt is higher, just as 10-year certificates of deposit tend to pay higher interest rates than 3-month CDs.<\/p>\n

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Bond watchers get nervous when that typical pattern is turned on its head.<\/p>\n

“We don’t see that occur that often, but when it does, it’s almost always bad news,” said Campbell Harvey, a professor of finance at Duke University.<\/p>\n

That’s why warning lights started flashing Friday morning when the yield on the 10-year Treasury note slipped below that of the three-month bill. The last time that happened was just before the Great Recession.<\/p>\n

Harvey’s been keeping a close eye on these rare, “inverted” yield curves<\/a> for more than 30 years, and treats them as a kind of early warning signal. <\/p>\n

“My indicator has successfully predicted four of the last four recessions,” he said, “including a pretty important call before the global financial crisis.”<\/p>\n

Harvey won’t actually forecast a recession unless the yield curve stays inverted for at least three months. But even a flat curve \u2014 in which long-term yields are just slightly above short-term yields \u2014 could be an indicator the economy is losing steam.<\/p>\n