The Relationship Between the China “Trade War” with the United States and the 10-Year U.S. Treasury Rate

Over the past year, there has been a volatile relationship between the ongoing “trade war” with China and the financial markets in the United States. It is a consistent trend that when trade war rhetoric heats up the stock market goes down and the price of U.S. bonds go up (10-Year Treasury yields go down).

According to a 10/10 article in The Street, “If there is no resolution, stocks would certainly fall… “The trade war” has multiple material impacts on economic growth and earnings…” U.S. equities (stocks) rise and fall based on the anticipation of corporate profits. There is a fear in the market that many larger U.S. companies will suffer if the “trade war” continues due to increased export costs, increased cost of Chinese imports, and reduced international profit numbers. This fear is causing investors to pull money out from U.S. equities and to re-invest their funds in the safe-haven 10-Year Treasury bond.

Volatility in the financial markets is expected to continue in the short run at least until the “trade war” settles down.