Rising tensions between the United States and China sent the benchmark 10-year US Treasury yields as low as 2.26 percent, their worst since the middle of September 2017, while the three-month yield rose to 2.362 percent. The yield curve between three-month bills and 10-year notes inverted as far as 14 basis points. An inverted yield curve is traditionally seen as a warning sign of a recession by financial markets, with fears of a new financial crisis intensifying back in March when an inversion appeared for the first time since 2007. While the spread might not indicate an immediate recession, an inverted yield curve is traditionally seen by economists as a sign one is likely over the next year or so.
Jasper Lawler, head of research at London Capital Group, said in a report: “Bonds are rallying as a haven asset, dragging the yields lower as investors fret over stalled US — China trade talks.
“Sentiment is taking a turn for the worse as trade tensions between the two powers show no signs of easing.”
The Treasury Department will sell $32billion in seven-year notes, after it saw strong demand for a $40billion sale of two-year notes and solid demand for a $41billion sale of five-year notes.
While the Federal Reserve is expected to cut its overnight lending rate later in 2019.
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Trade tensions between the two largest economies in the world showed little signs of relaxing as Chinese newspapers warned that Beijing could use rare earth elements to strike back against Washington.
It comes after President Donald Trump remarked on Monday he was “not yet ready” to make a deal with China over trade.
Rare earths are a group of 17 chemical elements used in everything from high-tech consumer electronics to military equipment.
China’s Communist Party newspaper, People’s Daily, wrote: “Will rare earths become a counter weapon for China to hit back against the pressure the United States has put on for no reason at all? The answer is no mystery.
“Undoubtedly, the US side wants to use the products made by China’s exported rare earths to counter and suppress China’s development.
“The Chinese people will never accept this!”
Sam Stovall, chief investment strategist at CFRA Research in New York, said: “All we know is there is increasingly heated rhetoric regarding trade.
“If we are not careful we end up in a trade war that will definitely slow economic growth and possibly push us into recession.”
Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank, said any recession would not likely be imminent and said the situation could improve before then.
He said: ”As the United States isn’t likely to fall into a recession anytime soon, there’s a likelihood that risk sentiment may improve based on the economy’s strength.”