There has been a lot of news coverage of what is called the ‘inverted yield curve’ for treasury securities. President Trump even tweeted about it last Wednesday. Creighton University economist Ernie Goss said this is sort of a self-fulfilling condition.
“The ten-year Treasury is a safe haven buy,” said Goss. “Across the globe, when everybody gets scared and risk-averse and that pushes up the price and the yields down.”
The yield on the ten-year moves with the market, while the Federal Reserve controls the movement of the two-year Treasury and it just moved that by reducing interest rates in recent days. The Chinese are also trying to manipulate the market.
“They can offset a tariff by buying U.S. dollars and pushing up the value of the dollar and pushing down their own currency, the yuan,” said Goss. “That’s what happened in this case. It offsets the tariffs. The Trump administration has complained about that and took this case into courts to try to resolve it and try to keep the Chinese from doing that.”
Goss says colleagues of his with more experience on this side think the Chinese may not be done.
“The yuan could move even lower,” said Goss. “That would, again, hurt agricultural sales in China and, to some degree, make it more difficult globally.”
The International Monetary Fund reported earlier this month that China actually took steps last year to prop up the value of its currency. The reduction in the yuan’s value is the result of no longer using those supports.