Yields on Canada’s 10-year government bonds are trading at 17 basis points less than three-month bonds, a report from Bloomberg says, marking the most significant yield curve inversion since 2007.
Investors have moved money to bonds in recent weeks, seeking safe assets as the U.S.-China trade war escalated. U.S. 10-year Treasury yields were at their lowest this week since September 2017 and the German equivalent is in negative territory.
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U.S. President Donald Trump’s threat on Thursday to impose a 5% tariff on Mexican imports amplified the concern as Canadian investors worried about the fate of the new NAFTA deal, Bloomberg reported.
Short-term bond yields exceeding those of longer notes is often considered a sign of a coming recession.
Trump’s threat came a day after legislation to ratify the amended trade deal was introduced in Parliament, and only hours after Vice-President Mike Pence discussed the new NAFTA with Prime Minister Justin Trudeau in Ottawa.
In a report on Friday, CIBC chief economist Avery Shenfeld said the added uncertainty that comes with tariffs are a “clear and present danger to global growth.”
“What’s roiling markets is not that the White House is engaged on the trade file, it’s the non-transparent and capricious manner in which protectionist tools are being deployed,” he wrote.
In a speech Thursday, Bank of Canada deputy governor Carolyn Wilkins noted the inverted yield curve.
“These developments partly reflect a change in tone by many central banks and, possibly, investor appetite for long-term, fixed-income assets,” she said. “They nonetheless also reflect a concern about the prospects for growth that is not reflected across other asset classes. We continue to be attentive to these signals.”