The Dow Jones Index on Wall Street has suffered its worst day of the year, fuelling fears a recession is coming.

The Dow Jones closed down 800 points last night, as both the US and UK stock markets slid backwards.

Commsec chief economist Craig James said a slide in bond yields was the catalyst for the stock market decline.

Investors have fled to bonds so quickly that returns on short-term two year bonds have risen above 10 year bonds for the first time since the global financial crisis in 2007 and 2009.

This inversion is widely viewed as a sign of recession.

“The reason why that’s a concern is it sort of signifies that policy is too tight, its screwing down too much on economies and causing economies to slow,” Mr James told 3AW’s Neil Mitchell.

The Australian sharemarket is down, following overseas slumps.

“We’re playing follow the leader with the European and US markets,”Mr James said.

“It is because of fears of recession in the United States.”

But a recession is not inevitable.

“What the central banks around the world could do is cut interest rates, ease up on monetary policy and we’ll start to see some improvement,” Mr James said.

Australia is also in a relatively good position, compared to many other nations.

“We’re in a pretty reasonable situation,” Mr James said.

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