US Treasury yield curve flattens further on fears of slowing growth, deflation

U.S. government debt yields fell on Monday while the so-called yield curve continued to flatten amid projections of slowing economic growth and weaker inflation.

Portions of the yield curve, which first inverted earlier this month, remained downward sloping Monday with short-term 2-year Treasury note yields above 5-year Treasury note yields. At 11:58 a.m. ET, the yield on the benchmark 10-year Treasury note fell to around 2.849 percent, the 16th time in the past 18 trading sessions the benchmark rate has declined.

The 2-year note yield was last seen at 2.705 percent while the 5-year note yield slipped to 2.694 percent. The closely followed spread between the 2-year Treasury note yield and the 10-year Treasury note yield remains positive, though flattening at around 13 basis points. Yields fall when bond prices rise.

Investors are increasingly concerned about a possible economic slowdown, shortly after the U.S., China and Japan all reported weaker-than-expected economic data. It comes after Wall Street's main indexes closed more than 2 percent lower on Friday, registering their largest weekly percentage declines since March.

Short-term yields have been anchored in place in recent months as Federal Reserve Chair Jerome Powell led his colleagues in three increases to the overnight lending rate and, until recently, suggested that the central bank could continue to hike the overnight rate multiple times in 2019.


However, the recent stock sell-off, paired with worries about global growth and lackluster inflation, have spelled tighter financial conditions and softer monetary policy forecasts. Yields of all maturities have fallen in recent weeks, though inflation-sensitive long-term rates have shouldered the brunt of the yield contraction as more investors start to readjust GDP forecasts.

Just nine days ahead of the December Federal Open Market Committee meeting, famed hedge fund manager Paul Tudor Jones told CNBC that current conditions will stand in the way of more rate hikes next year after a fourth and final increase later this month.

"The one thing I would say is there's a high probability that this hike, assuming they hike, will be the last one for a long time," Jones told CNBC's Andrew Ross Sorkin during a "Squawk Box" interview.

Using the Goldman Sachs commodity index as a baseline, Jones said prices are down 15 percent over the past 40 days. That gives the Fed no impulse to rate rates, he added.

"Never in the history of the Fed have we had that kind of deflationary impulse eight days before a hike," he said.

The difference between the 5-year Treasury inflation-protected securities, or TIPS, and the corresponding Treasurys hit 1.72 percentage points last Tuesday. That spread is a practical look at the market's projection of where inflation is heading, and is down from highs over 2 percent in October.

— CNBC's Jeff Cox and Sam Meredith contributed reporting.