Dow Jones down 200 points after US Treasury note yields decline

The Dow Jones is plummeting after 10-year US Treasury note yields fell to their lowest levels in almost two years. The decline of the 10-year Treasury note yield is usually a sign of concern about the US economy.

Is an inverted yield curve a bad sign for the US economy?

The 10-year Treasury note yield is likely falling because of fears about the long-term stability of the US economy. The 10-year Treasury note yield is at 2.243%, while the three-month Treasury bill yield is at 2.36%. As a result, there is a larger inverted yield curve, in which short-term bill yields rise higher than long-term note yields. According to US Federal Reserve data, an inverted yield curve has often been a precursor to a recession for the past 60 years.

Campbell Harvey, finance professor at Duke University, believes that investors should be cautious when the yield curve inverts.

‘When the yield curve inverts, it's not the time to borrow money to take a vacation to Orlando, [Florida]. It is the time to save, to build a cushion,’ said Harvey.

Dow Jones down as US-China trade impasse continues

Investors are choosing short-term safe haven assets like US Treasury bills possibly because of the continuing US-China trade war. The escalation continued with reports from Chinese media about the nation considering limiting its exports of rare earth minerals. The minerals are pivotal to create electronic devices.

George Bauk, chief executive officer (CEO), of Northern Minerals, noted that China could be weaponising its rare earth minerals as a negotiation tool with the US.

‘China, as the dominant producer of rare earths, has shown in the past that it can use rare earths as a bargaining chip when it comes to multilateral negotiations,’ said Bauk.

Investors will be monitoring US Treasury notes and the US-China trade conflict to see if the Dow Jones can withstand this latest volatility.