Wordwide Bond Yields Plummet, 10 Year T at 2 year Low

The “risk-off” trade accelerated this week as the US-China trade rift accelerated with ever more heated rhetoric. The recent threats by China to limit exports of critical rare earth minerals fueled stock market selloffs and helped drive investors into “safe haven” government bonds. The 10 year T hit a low of 2.21% today, a near 2 year low. Japanese and German 10 year bond yields are negative, so again, the US is trading at a yield premium. The 3 month Treasury yield is a full 10 bps higher than the 10 year yield, a case of extreme partial yield inversion, often a harbinger of a recession. CMBS spreads are widening in the secondary market by about 6-8 bps on AAA paper with further widening in the lower tranches. Life companies may institute higher floor rates. All-in loan rates are still strong as they are benefiting from lower indices (being driven by anticipation of future slowing) along with spreads still hanging tight as present economic conditions are still relatively strong. By David R. Pascale, Jr. , Senior Vice President at George Smith Partners