The Dow slides more than 550 points after bond market warns of recession

The US blue-chip index took a major tumble on Wednesday, reacting to the 10-year Treasury bond yield dropping below the 2-year Treasury bond – the first time since the 2007-08 financial crash.

The Dow Jones Index fell by more than 550 points on Wednesday in reaction to signs from the 10-year Treasury bond market and economic data coming out of Germany and China warned of a recession.

The sharp drop in the Dow was caused by the 10-year Treasury bond yield slipping near 1.6% on early on Wednesday, with it falling below the yield for the 2-year Treasury bond – the first time this has happened since the 2007-08 financial crash.

Investors shift away from equities to safer assets

The US blue-chip index suffered major as investors moved money away from equities and into haven investments like bonds, with the S&P 500 and Nasdaq sliding 2.28% and 2.46% respectively on Wednesday.

The main driver of the stock market decline on Wednesday was weaker-than-expected economic data emanating from Europe’s largest economy, Germany, which saw it shrink by 0.1% in the second-quarter of the year as global trade disputes continue to hurt economic activity.

China also released figures overnight that highlighted how the world’s second largest economy is also reeling from its trade was with the US. Manufacturing output in China fell in July, along with weaker retail spending, signalling that a slowdown in economic growth.

Practise trading the Dow and other major indices with an IG demo account.

Bond market warns of recession on the horizon

The last time the 10-year Treasury bond fell below its 2-year counterpart, the financial crisis over a decade ago hit.

On average, long-term bonds offer a better yield than short-term bonds with investors requiring a larger pay-out for having their money locked in for a longer period.

However, that yield curve inverted on Wednesday, which is a sign that investors are growing worried about the strength of the US economy.

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

European Central Bank meeting

Learn about how the ECB meeting affects interest rates and price stability ahead of the next announcement.

  • How might the next meeting affect the markets?
  • What are the key rate decisions to watch?
  • Why is the Governing Council announcement important for traders?

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.