US Treasury yields tumble on trade war, growth fears

New York  — The US-China trade conflict and cracks in the global economy are herding investors to the safest parts of financial markets, pushing yields to multiyear lows and strengthening bets that the Federal Reserve will cut interest rates in 2019.

Disappointing US economic data helped drive the 10-year Treasury yield down to 2.29%, the lowest since 2017. Futures trading gathered pace amid mortgage-related hedging. The yield on the long bond also fell to the lowest since 2017, at 2.73%. Inflation expectations tumbled yet again, and the Bloomberg Dollar Spot Index surged to its highest level this year before retreating.

The rally effectively wipes out the impact of US policymakers’ five rate hikes since benchmark 10-year yields were last this low. It comes as traders are pricing in more than 30 basis points of Fed cuts by year-end, with options activity suggesting some hedging against a half-point easing as officials’ next move.

The tariff standoff between the world’s two largest economies has sharpened the focus on signs of faltering growth, which were apparent Thursday in the US and Europe.

The S&P 500 Index dropped for a fourth session in five, and the Dow Jones Industrial Average lost 286 points, after the Chinese Communist Party’s flagship newspaper published two commentaries assailing US moves to curb Chinese companies.

Stocks in industries seen as susceptible to trade disruptions — including semiconductors, vehicles and energy — retreated. Emerging-market shares slid and West Texas crude fell below $60 a barrel.

“If investors’ worst fears are realised and there is a sharp longer-term ramp-up in the trade war, you could see yields fall further,” said Jon Hill, rates strategist at BMO Capital. “There’s a very bond bullish backdrop.”

Source: businesslive.co.za