Trade Wars Are Flattening Yield Curves

The markets opened the week with the Dow experiencing a 400-point loss at one point with trade wars at the root of the problem–an ongoing theme in the markets. An additional byproduct of these trade wars aside from roiling the markets is a flattening yield curve for government debt, according to an article in Bloomberg.

In certain cases, such as the spread between the 2-year and 10-year Treasury yields, the spread is at its lowest since 2007. Multi-year lows can be found between 7- and 10-year yields as well as 5- and 30-year yields.

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Strategists at multinational banking firm Societe Generale are prognosticating that the 2- to 10-year spread will narrow down to 30 basis points by the end of 2018 and pare down to 10 basis points by the middle of 2019.

“We do not think the curve is too flat and recommend positioning for a further flattening,” the bank’s strategists wrote in a note. “We continue to see the 10-year UST getting increasingly sticky around 3%.”

Policymakers and investors alike are closely watching the yield curves because an inversion has usually been the precursor for recessions.

For more trends in fixed income, visit the Fixed Income Channel.