US two-year yield hits lowest since September 2017

• US two-year Treasury yield drops to the lowest level since September 2017.
• US 10-year Treasury yield slips to three-year lows on risk aversion.
• The Treasury yield curve may invert on rising US-China trade tensions.

US two-year Treasury yield fell to 23-month lows in the early Asian hours today, possibly due to heightened Sino-US trade tensions and the resulting flight to safety.

The two-year yield, which is more sensitive to the short-term interest rate expectations than the 10-year yield,  gapped lower to 1.46%, the lowest level since September 2017.

Meanwhile, the benchmark 10-year yield also hit a three-year low of 1.474%. As of writing the two and 10-year yields are trading at 1.475% and 1.484%, respectively.

The spread is barely holding in positive territory but may drop into the negative region during the day ahead due to the escalating US-China trade tensions and the resulting risk aversion.

A negative spread would mean curve inversions, which is generally regarded as a recession warning.

On Friday, the US President Trump announced a hike in the levy on $250 billion worth of Chinese goods from the current 25% to 30%. The new rate would take effect from Oct. 1. Further, President Trump said that the remaining $300B of goods will be taxed at 15% starting Sept. 1.