U.S. stock index futures dropped on Wednesday, giving up earlier gains, as a drop in global bond yields raised concerns about a slowing global economy.

Investors moved back into safe havens like gold, just as they did on Monday when stocks dropped the most they have in a single day all year. Gold reached a more than six-year high.

At around 8:40 a.m. ET, Dow Jones Industrial Average futures indicated a drop of 300 points. S&P 500 and Nasdaq 100 futures also pointed to a drop at the open. Futures were trading higher earlier on Wednesday morning.

It was unclear of the exact reason for the sliding stock futures but the move coincided with the 10-year Treasury yield sliding to its lowest level since 2016. The benchmark 10-year Treasury yield traded at 1.63% after staring August above 2%. The move further narrowed the yield curve, a widely watched recession indicator. The spread between the 10-year rate and the 2-year yield fell to its lowest level since 2007 at less than 8 basis points.


It is no longer absurd to think that the nominal yield on U.S. Treasury securities could go negative. Last week the German 30-year government bond yield dipped into negative territory for the first time ever. Around $14 trillion of outstanding bonds worldwide, or 25% of the market, now trade at negative yields, according to Bloomberg. What was once viewed as a short-term aberration – that creditors are paying debtors for taking their money – has already become commonplace in developed markets outside of the U.S. Whenever the world economy next goes into hibernation, U.S. Treasuries – which many investors view as the ultimate “safe haven” apart from gold – may be no exception to the negative yield phenomenon. And if trade tensions keep escalating, bond markets may move in that direction faster than many investors think.

What’s behind negative interest rates? Many observers blame central banks like the European Central Bank (ECB) and the Bank of Japan (BOJ) that are taxing banks’ excess reserves with negative deposit rates and have made bonds scarcer by removing them from the market through their purchase programs. The BOJ now owns about half and the ECB about 30% of the bonds issued by their respective governments, according to Bloomberg.

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