The inverted yield curve in the 2- and 10-year Treasury note certainly has investors on edge. U.S. Treasury prices are mostly higher Tuesday, driving some flattening activity in the yield curve, sending the 10-year yield down to 1.505% while the two-year yield is at 1.539%. Nonetheless, markets continue to rally with the Dow up 78 points (0.3%), the S&P 500 is up 10 points (0.37%) and the Nasdaq up 33 points (0.42%) as of 10:40 am ET Tuesday.
Last Friday, China announced that it would implement new tariffs on $75 billion of U.S. goods on in response to U.S. President Donald Trump’s latest salvo of tariffs, which are set to take effect on Sept. 1. That latest retaliation from China prompted Trump to tweet that U.S. companies were “ordered” to look for alternatives to China.
Our Country has lost, stupidly, Trillions of Dollars with China over many years. They have stolen our Intellectual Property at a rate of Hundreds of Billions of Dollars a year, & they want to continue. I won’t let that happen! We don’t need China and, frankly, would be far….
— Donald J. Trump (@realDonaldTrump) August 23, 2019
….better off without them. The vast amounts of money made and stolen by China from the United States, year after year, for decades, will and must STOP. Our great American companies are hereby ordered to immediately start looking for an alternative to China, including bringing..
— Donald J. Trump (@realDonaldTrump) August 23, 2019
As usual, the Fed did NOTHING! It is incredible that they can “speak” without knowing or asking what I am doing, which will be announced shortly. We have a very strong dollar and a very weak Fed. I will work “brilliantly” with both, and the U.S. will do great…
— Donald J. Trump (@realDonaldTrump) August 23, 2019
More Volatility to Come
In the meantime, technical indicators within the CBOE Volatility Index could mean that the major indexes have more room to fall.
“We’ve seen it at 30 and 35 under uncertain conditions,” said Wharton School’s Jeremy Siegel. That means “there is some hedging going on, but really not as much as there could be given uncertainty.”
“I would love this to be clarified. We come to a deal on trade, boy, this market is up 10% to 15%,” Siegel said, “but without it’s going to be worrisome.”
Investors have been treating themselves to a healthy diet of bonds given the latest volatility as the U.S.-China trade war reaches new heights
Investors who are hungry for yield can look to riskier debt options, such as high yield exchange-traded funds (ETFs). Investment-grade corporate bond-focused fixed-income ETF options include the iShares Intermediate Credit Bond ETF (NASDAQ: CIU), iShares iBoxx $ Invmt Grade Corp Bd ETF (NYSEArca: LQD) and Vanguard Interm-Term Corp Bd ETF (NASDAQ: VCIT).
For more trends in fixed income, visit the Fixed Income Channel.