White House National Trade Council Director Peter Navarro
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White House trade advisor Peter Navarro disputed that the bond market flashed a recession signal last week, which spooked investors and sent the stock market tumbling.
The yield on the benchmark 10-year Treasury note briefly fell below the 2-year rate on Wednesday, a phenomenon in the bond market known as yield curve inversion, which is typically taken as a sign that a recession is on the horizon.
Navarro, however, disputed this: “Technically, we did not have a yield curve inversion,” he said in an interview on CNN.
The White House trade advisor called it a “flat curve” because the spread was too narrow. The yield on the benchmark 10-year Treasury note dropped to 1.623% Wednesday, briefly below the 2-year rate of 1.634%.
“An inverted yield curve requires a big spread between the short and long,” Navarro said. “All we have had is a flat curve. It’s a flat curve which is a very weak signal of any possibility.”
Investors, however, did not seem to interpret the yield curve that way on Wednesday. The Dow Jones Industrial Average dropped 800 points or about 3% in its worst performance of 2019 as investors grew spooked about the U.S. economy.
Navarro said that the yield curve is actually sending a positive signal about the economy. He said foreign capital is coming into the bond market due to the strength of the Trump economy, which is bidding up bond prices and bidding down yields, leading to what he said is the flat curve.
“In this case, the flat curve is actually the result of a very strong Trump economy,” he said.
