The morning of Thursday, August 29 saw U.S. government debt prices inch lower as investors reel from U.S.-China trade tensions and the increased likelihood of a ‘no-deal’ Brexit.
This follows yesterday’s further fall in global bond yields when the 10-year German bund yield reached a record low of -0.716%. The yield of 10-year Japanese government bonds fell by a basis point to -0.285%, just above its 2016 record low of -0.300%.
The recent and ongoing inversions in the U.S. yield curve, where long-term yields are below short-term ones, have caused many to fear a looming recession. This might be well-founded as every U.S. recession since 1960 saw an inversion in the yield curve in the 12 months preceding it.
Italian Prime Minister Giuseppe Conte obtained Presidential approval to form a new centre-left government avoiding a snap election and further political instability. Rumours of such a development caused Italy’s 10-year bond yield to drop below 1% for the first time ever yesterday. Italy’s FTSE MIB climbed 1.2% on the news this morning.
Internationally the focus remains on the ongoing trade negotiations between the U.S. and China. American President Donald Trump vowed tariffs on around $500 billion of Chinese goods last week after China imposed levies on $75 billion of U.S. goods.
Both countries have recently been coy as to the progress and even the existence of discussions. A spokesperson for the Chinese Commerce Ministry stated this morning that both sides have a discussion scheduled for September and that China is willing to resolve any issues “calmly.”