The bond yield inversion curve widened to its deepest level since the financial crisis. Economists issued a warning indicator of recession 2019 emerging as a large threat.
The 10-year US Treasury yields benchmark is below average
The trade tension between the two largest economies, China and the United States, has resulted worst since September 2017. The 10-year US Treasury yields reached as low as 2.26 percent. However, the three-month yield saw a rise to 2.362 percent. The yield curve between 10-year notes and three-month bills is extended to basis points.
The fears of emerging a new financial crisis intensified back after the inverted yield sent warning alert of recession by financial markets. The traditionally observed inversion appeared for the first time in March since 2007. The spread of yield inversion is a sign indicating recession to be appeared in the coming year, if not immediately.
The Federal Reserve is expected to cut the lending rate
After strong demand for a $40 billion sale of two-year notes and $41 billion sales of five-year notes, the Treasury Department targets to sell $32billion in seven-year notes.
According to a report, Head of research at London Capital Group, Jasper Lawler said:
“Bonds are rallying as a haven asset, dragging the yields lower as investors fret over stalled US-China trade talks. The sentiment is taking a turn for the worse as trade tensions between the two powers show no signs of easing.”
Meanwhile, Federal Reserve is anticipated to reduce its overnight lending rate by the end of 2019.
A Trade war will slow Economic growth: CFRA
The rising trade disputes between China and the United States showed a sign of relief after China’s People’s Daily newspaper notified that Beijing could use rare earth elements to strike back against Washington. While US president remarked, “not yet ready.”
China’s communist party newspaper, People’s Daily, warned:
“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!”
On which, the chief investment strategist at CFRA Research in New York, Sam Stovall reported heated rhetoric regarding trade and said,
“If we are not careful we end up in a trade war that will definitely slow economic growth and possibly push us into recession.”
According to marketing strategist at Sumitomo Mitsui Trust Bank, Ayako Sera, the looming fear of recession is not likely, and the situation could see an improvement.
”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.”