Investors are jittery. The yield on 10-year US Treasury notes has slipped below those of three-month notes, forming an inverted curve that has historically preceded a recession in the US economy.
While there have been exceptions in 1966 and 1998, the inverted curve this time when US economic data is throwing mixed signals becomes significant. The US Federal Reserve was quick to assess the situation.
It signalled no rate cut for this year against the market expectations of one. The US Fund futures are pricing in 60 per cent chances of a rate cut by December.
The slowdown in China and Germany along with uncertainty around Britain's exit from European Union have only compounded to the worries.
A global growth slowdown may indeed hit India, but a prolonged inverted yield curve bodes well for India and other emerging markets as risk appetite for EMs rises on falling interest rates cycle.