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Wall Street shares drop as yield curve causes alarm Wall Street shares drop as yield curve causes alarm
(35 minutes later)
Wall Street shares have fallen sharply, with financial companies suffering the biggest declines.Wall Street shares have fallen sharply, with financial companies suffering the biggest declines.
The Dow Jones and S&P 500 indexes were down about 2.5% at mid-day, while the Nasdaq sank about 3%.The Dow Jones and S&P 500 indexes were down about 2.5% at mid-day, while the Nasdaq sank about 3%.
The fall came as a closely-watched financial measure caused alarm about US economic prospects.The fall came as a closely-watched financial measure caused alarm about US economic prospects.
Increased doubts also emerged that talks between the US and China will lead to an easing of trade tensions, reversing Monday's rise.Increased doubts also emerged that talks between the US and China will lead to an easing of trade tensions, reversing Monday's rise.
The declines extended several weeks of sharp swings in the market. On Monday, the share indexes closed only barely ahead for the year as a whole, despite hitting record highs earlier in the summer.The declines extended several weeks of sharp swings in the market. On Monday, the share indexes closed only barely ahead for the year as a whole, despite hitting record highs earlier in the summer.
Analysts said the trigger for Tuesday's fall appeared to be concerns about the "yield curve", which measures the difference between the interest rates paid on short-term and long-term US bonds.Analysts said the trigger for Tuesday's fall appeared to be concerns about the "yield curve", which measures the difference between the interest rates paid on short-term and long-term US bonds.
The gap has narrowed in recent months, as investors demand higher rates of return on short-term debt in anticipation of inflation and rate rises.The gap has narrowed in recent months, as investors demand higher rates of return on short-term debt in anticipation of inflation and rate rises.
At the same time, they are accepting relatively lower rates on long-term debt, in anticipation of limited inflation and slower economic growth over the next decade.At the same time, they are accepting relatively lower rates on long-term debt, in anticipation of limited inflation and slower economic growth over the next decade.
Researchers have found that changes in the yield curve can signal recession.Researchers have found that changes in the yield curve can signal recession.
The difference between the rates on three-year and two-year debt disappeared on Monday.
The move fuelled concerns on Tuesday that the same might happen to the gap between two-year and 10-year bonds - a more significant indicator.
Shares in financial companies, which are especially exposed to interest rates, were hardest hit, with firms such as JP Morgan Chase, Goldman Sachs, American Express among the biggest losers on the Dow.Shares in financial companies, which are especially exposed to interest rates, were hardest hit, with firms such as JP Morgan Chase, Goldman Sachs, American Express among the biggest losers on the Dow.