U.S. stocks slipped on Wednesday, as investors reeling from rising trade tensions fled riskier assets for perceived safer havens, leading the bond market to price in a slide into recession.
U.S. Treasury yields took another dramatic drop and the premium on three-month bill rates above 10-year note yields was at its most elevated levels since March 2007. This so-called inversion between the two maturities has preceded every U.S. recession in the past 50 years.
The drop in yields also reflected a jump in expectations that the Federal Reserve would cut key borrowing costs three more times by year-end, with markets fully pricing in a reduction in September.
“Whether the U.S. economy is strong enough to withstand the next phase of a trade war is giving people concern right now,” said Mike Loewengart, vice-president of investment strategy at E*Trade Financial in New York.