Overview: Trade tensions escalated last week as China devalued its currency and the U.S. responded by labeling China a currency manipulator. U.S. stocks were down -0.5% and 10-year U.S. Treasury yields fell 12 basis points (bps) to a level of 1.74% in a flight-to-safety trade. Since their recent peak in November 2018, the 10-year U.S. Treasury yields have fallen about 150 bps. Rate declines have been driven by slower global growth, lower inflation expectations and the end of the Federal Reserve balance sheet reduction. Furthermore, U.S. yields look attractive on a relative basis compared to negative-yielding global debt. Currently, there is about $15 trillion worth of negative-yielding bonds, all of which can be found outside of the U.S. More favorable hedging costs for non-U.S. investors has increased foreign demand for U.S. Treasuries, further compounding the decline in U.S. yields.
This week’s data provided by JP Morgan:
Source: JP Morgan Asset Management, Barclays, Bloomberg, Factset, Federal Reserve. Data through 08/09/19
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