At around 1:13 p.m. ET, the yield on the benchmark 10-year Treasury note was trading at 1.533%, below the 2-year’s rate of 1.545%, inverting the U.S. Treasury curve further. Such an inversion of the 2-10 yields is viewed by fixed income traders as a recession prognosticator, but trying to forecast exactly when GDP growth contracts is harder to project.
Inversions of that part of the curve have predated every recession over the past 50 years and the last five 2-10 inversions have all led to recessions. Still, even when it does predict a recession, yield curve inversion is, on average, 22 months early, according to Credit Suisse.
An uptick in U.S.-China trade tensions also helped aggravate recession anxieties.
Beijing on Friday announced new tariffs on $75 billion of U.S. goods on Friday in response to the Trump administration’s impending tariffs, set to take effect in waves starting Sept. 1. That retaliation prompted Trump to tweet Friday morning that U.S. companies were “ordered” to immediately look for alternatives to China.
The U.S. president also lashed out at China President Xi Jinping and Federal Reserve Chair Jerome Powell, who delivered a speech on Friday in which he said the global economic outlook “has been deteriorating” and highlighted the trade war as a major source of business uncertainty.
Trump said after the market closed that he would raise existing duties on $250 billion in Chinese products to 30% from 25%, and that new tariffs on a further $300 billion of Chinese goods, due to take effect on September 1, will now rise from 10% to 15%.
Monday’s moves also came after a host of Fed leaders spoke to CNBC from their annual symposium in Jackson Hole, Wyoming.
Though Powell didn’t repeat his now-infamous July 31 comments that the Fed’s recent rate cut was merely a “midcycle adjustment,” he did not promise additional easing as some investors had hoped. He also focused on the impact the trade war is having on the business outlook.
Regarding the Fed’s dual mandate of full employment and price stability, Powell said the “economy is close to both goals. Our challenge now is to do what monetary policy can do to sustain the expansion so that the benefits of the strong jobs market extend to more of those still left behind, and so that inflation is centered firmly around 2%.”
U.S. Markets Overview: Treasurys chart
|US 3-MO||U.S. 3 Month Treasury||1.992||0.028||0.00|
|US 1-YR||U.S. 1 Year Treasury||1.755||0.023||0.00|
|US 2-YR||U.S. 2 Year Treasury||1.545||0.016||0.00|
|US 5-YR||U.S. 5 Year Treasury||1.422||0.013||0.00|
|US 10-YR||U.S. 10 Year Treasury||1.538||0.011||0.00|
|US 30-YR||U.S. 30 Year Treasury||2.039||0.015||0.00|