The summer of fear could push the Treasury yield to 1.5%, the rally of Yite by Bloomberg

(Bloomberg) – Get ready for an uncertain summer, where calls for treasury bills and the yen will get bigger and bigger as US President Donald Trump turns tariffs into his tool preferred foreign policy.

Trump's unexpected decision to impose a tax on Mexican imports casts new doubt on the prospect of a trade deal between the United States and China. While strategists have exposed this week many reasons why 10-year Treasury yields have been reduced to 2% and the yen strengthened, some fund managers are now calling for an even stronger recovery of safe haven assets.

"If there were any who still thought that there might be a short-term resolution with China, the situation is now out of date," said Prashant Newnaha, senior rate strategist at TD Securities Inc. in Singapore. "The prospects for this trade war will be much longer. Overall, you would like to buy Treasury securities. "

Trump's unexpected tweet Thursday night on the imposition of tariffs on Mexico has magnified the concern over global trade frictions that have already dragged on in countries as diverse as South Korea, Japan, Canada and the United States. 'European Union. The US president has also threatened to levy taxes on auto imports, and said this week that he does not see an agreement with China soon.

Akura Takei, a fixed income fund manager at Asset Management One in Tokyo, says Akura Takei, a global fixed income fund manager, is expected to reduce the yield on US 1.5-year bonds by 1.5 %.

Takei, who used to be "the most optimistic Treasury investor in Japan," said he would buy US government bonds in five to ten years, saying the market would anticipate a drop in US government bond yields. 'interest. Yields would have fallen even without the US-China trade war as US gains up to December tightened financial conditions and hurt the economy, did it? he declares.

Mexico's tariffs are China and the United States. Deal less likely, analysts say

The drop of four basis points Friday to 2.17% after touching the lowest since September 2017. The increase of 0.6% to 108.96 to the dollar, extending its largest monthly increase this year. Mexico slipped 2.5%.

According to Damien Loh, investment director of Singapore 's hedge fund Ensemble Capital, the yen could strengthen at 105 per dollar by the end of the year, a gain of about 4% from at current levels. Treasury yields are expected to fall below 2% by the end of the year, he said.

"The news from Mexico has surprised everyone," Loh said. "It's really only one person – Trump – who is leading everything right now."

Trump announced that it would apply tariffs of up to 25% on Mexican products until the country puts an end to the influx of illegal immigrants to the United States. This surprised traders as Mexico accepted a new North American trade pact. Tension also rose after it was reported that China would have a plan ready to restrict rare earth exports to the United States.

Three cuts

The swap markets are predicting three Fed rate cuts by the end of 2020. Bonds have proliferated this week around the world. Ten-year yields in Australia and New Zealand hit record highs, while equivalent German bonds are within a few frames. points of the same.

The gap between 3-month and 10-year Treasury yields – seen as an indicator of a future recession – has become the most inverted since 2007 this week, suggesting that more and more investors are expecting to a contraction of the world's largest economy. Treasury yields at 1.50% over 10 years would be the lowest since 2016.

"This is no longer a war on trade, tariffs are now being used as a weapon for many problems with different countries," said Janu Chan, chief economist of St. George Bank in Sydney. "It affects businesses and business confidence. The way it does it is very damaging to the global economy.