Last week, equity prices were under pressure and bond yields declined as unease grew surrounding U.S. economic health. Concerns resurfaced regarding the tenuous trade situation between the U.S. and China – made worse with the arrest of Huawei’s CFO. China is very likely to take a tough stance against the arrest, and I expect the rhetoric to heat up in the week ahead.
With the decline in Treasury yields, partly due to a flight to safety with risk assets under pressure and the weak November employment report, the yield curve inverted for the first time in more than a decade with 5-year yields now lower than 2-year. The much-watched 2- to 10-year yield curve spread is still positive, but only by 13 basis points (bps). I expect this volatile market action to continue into year end.
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