U.S. Markets

Inverted yield curves 'not a vote of confidence': BoE's Carney

Mark Carney, Governor of the Bank of England (BOE) speaks at the Council on Foreign Relations in New York, U.S., September 10, 2019. REUTERS/Mike Segar

NEW YORK (Reuters) - The recent drop in long-term bond yields below shorter ones in key sovereign bond markets is not “a vote of confidence” in the economic outlook, the head of the Bank of England said on Tuesday.

While it is easier now to invert developed nations’ yield curves than it had been previously, it is still no positive signal for the economy, Bank of England Governor Mark Carney said at an event in New York.

Yield curves in the United States and Britain inverted for a while in the last month. In the U.S. case, the phenomenon has stood as a reliable precursor to economic recession, although its track record is less consistent elsewhere.

Carney, speaking a day after the British parliament blocked Prime Minister Boris Johnson’s latest bid for early elections there amid the ongoing Brexit standoff, also said business investment in Britain is tracking at a 25% slower pace than it was before the 2016 Brexit referendum.

The central bank official also spoke about the extent to which Brexit could affect the UK economy, adding that he would expect inflation to rise and growth to slow if Britain departs from the European Union without a deal. Carney noted that the pound is more volatile and said the economic impact will depend on the final terms of Brexit.

“Sterling volatility, as you would know, is at emerging market levels and it’s decoupled from other advanced economy pairs for obvious reasons,” he said. “Financial markets are going to move substantially one way or another depending on the outcome.”

The pound experienced wide swings over the past there months but volatility has come off recent highs amid diminished chances of there being a no-deal Brexit on Oct. 31.

Reporting by Jonnelle Marte and Kate Duguid; Writing by Dan Burns; Editing by Chizu Nomiyama