April 19, 2018 / 12:43 PM / 7 months ago

Goldman says jitters about U.S. yield inversion 'overblown'

The Goldman Sachs company logo is seen in the company's space on the floor of the New York Stock Exchange, (NYSE) in New York, U.S., April 17, 2018. REUTERS/Brendan McDermid

NEW YORK (Reuters) - Goldman Sachs analysts said on Thursday concerns about a U.S. yield curve inversion among traders as an omen of a looming recession are “overblown,” though an inversion is often followed by a 3 percent to 5 percent drop in the S&P 500.

The yield curve, or the yield difference between shorter- and longer-dated Treasuries, is at its flattest in more than a decade on expectations of further rate increases from the Federal Reserve and inflation staying tame.

A curve inversion occurs when shorter-dated yields rise above longer-dated yields as traders worry that short-term borrowing costs become too high, resulting in an economic slowdown.

“While we would consider a significant inversion of the Treasury curve a bearish signal, we think such concerns are currently misplaced,” Goldman analysts Charles Himmelberg and Matthieu Droumaguet wrote in a research note.

While Goldman and some Federal officials have downplayed the risk of a curve inversion, others including analysts at JPMorgan have sounded the alarm.

Reporting by Richard Leong; Editing by Steve Orlofsky

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