Investing.com - President Donald Trump may have saved Christmas (for those holding toy company stocks), but he hasn’t saved the U.S. from the likelihood of a recession, according to the bond market.
The 10-year and 2-year Treasury yield curve continued to flatten Tuesday, indicating that pessimism in the economy continues.
Cash did flow into equities and out of bonds on the administration's announcement it is delaying imposition of new 10% tariffs on many goods until after retailers have stocked up for the holiday shopping season. But bonds sold off, with more weakness on the shorter-maturity 2-year debt than the 10-year, causing the spread in yields to continue shrinking.
The spread was at 1.87 basis points, just a touch away from inverting, which many in the market will point to as one of the best forecasters of a recession.
One reason for the possible inverted yield curve could be the trouble beyond U.S. borders, such as the protests in Hong Kong, which could dent the global economy. President Donald Trump tweeted this afternoon the Chinese government was moving troops to the Hong Kong border.
Another may be that Trump scored a political win against his nemesis the Federal Reserve by putting the responsibility of the economy back on the Federal Open Market Committee, the Fed's rate-making body. But he may have lost out economically.
After the tariff announcement today, the odds of a half-point rate cut from the FOMC in September plummeted to about 4% today from about 18% the day before, according to Investing.com’s Fed Rate Monitor Tool.