Inverted Yield Curve Is Hiding in Plain Sight

Pray for the global economy. For much of the past year or so, investors and economists have anxiously watched the relentless shrinkage of the gap between short- and long-term U.S. bond yields to the narrowest levels since 2007. After all, an inversion — when long-term yields fall below short term ones — preceded each of the last seven recessions. But while everyone has been so focused on the U.S, they seemed to have missed the global yield-curve inversion.

Within the past two months, the yield on an ICE Bank of America index of government bonds due in seven to 10 years has fallen below the yield on an index of bonds due in one to three years for the first time since the first half of 2007. The strategists at JPMorgan Chase & Co. said they were seeing the same thing in indexes they manage. Although the U.S. economy is in solid shape, there have been signs of weakness in the euro zone, China and emerging markets over the past month. A Citigroup Inc. index shows that worldwide economic data is missing estimates by the most since 2013. And within the past few weeks, both the International Monetary Fund and the Organization for Economic Cooperation and Development said that although tax cuts and fiscal spending were boosting the U.S. economy now, those moves are increasing risks to the global economy by causing debt to rise and potentially stoking inflation and the dollar.