Today, the 10 year-3 month spread ended below 1%, in the absence of safe haven effects. The 10 year-2 year spread ended at 0.35%.
Figure 1: Ten year constant maturity Treasury minus three month Treasury secondary market yield differential (blue) and Ten year minus two year constant maturity Treasury yields (green), in %. Source: Federal Reserve Board via FRED, Bloomberg for 6/19, and author’s calculations.
In other words, term spreads continue their downward march, albeit influenced to some degree by safe haven effects. For the most of the observations, except for the Italy event, I think the safe haven effect is not dominant. In Figure 2, I show the 10yr-3mo spread and the VIX to verify this assertion.
Figure 2: Ten year constant maturity Treasury minus three month Treasury secondary market yield differential, % (blue, right scale) and VIX (pink, left scale). Source: Federal Reserve Board via FRED, CBOT via FRED, Bloomberg for 6/19, and author’s calculations.
To me, it seems that the more recent negative trade announcements seem to be associated with spread reductions; earlier ones (like the initial reference to Section 232 on aluminum and steel) had less impact.
To some extent, it is hard to see a macroeconomic effect from a mere $50 billion worth of imports being hit by tariffs. However, $200 billion on each side, if it comes to pass, does start getting into “real” money, particularly if it brings a lot of elevated economic and policy uncertainty.
On a side note, I’ve recently heard about yield curve inversion and the 10yr-7yr spread (e.g., here). I’ve honestly never heard of any particular predictive power of this spread, but for completeness, here’s the graph.
Figure 3: Ten year minus seven year constant maturity Treasury yields (blue), in %. NBER defined recession dates shaded gray. Source: Federal Reserve Board via FRED, US Treasury for 6/19, and author’s calculations.
For discussion of 10yr-3mo spread and recession prediction, see Chinn and Kucko (2015).