U.S. government debt yields were sharply lower on Monday, amid trade tensions between the world's two largest economies and concerns of slowing global economic growth.
The spread between 2-year and 10-year Treasury yields narrowed to about only 5 basis points on Monday, near its lowest level since 2007.
"Persistently low inflation in developed economies should constrain nominal yields, and tariffs are more likely to weigh on prices via demand destruction," Michael Reynolds, investment strategy officer at Glenmede Trust Company. "Overall, these factors are holding back aggregate demand for both consumer spending and business investment, culminating in lower bond yields that reflect diminished growth expectations."
Market focus is largely attuned to simmering trade tensions between Washington and Beijing.
On Friday, President Donald Trump said he was not ready to make a deal with China and called into question the next round of trade talks. It comes after the U.S. president said he would impose a 10% tariff on the remaining $300 billion worth of Chinese imports on September 1. China responded by halting its purchases of U.S. agricultural products.
Last week, the U.S. accused China of being a currency manipulator after Beijing allowed the yuan to dip below the 7-per-dollar level for the first time in more than a decade.
On Monday, the People's Bank of China set its daily midpoint for yuan trading — which determines the limits for its onshore movement — at 7.0211 per dollar. That was weaker than Friday's session, but stronger than market expectations.
Meanwhile, the U.S. Treasury is set to auction $42 billion in 13-week bills and $42 billion in 26-week bills.