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The yen rose against the dollar on Tuesday as the market again expressed caution over the resolution of the Sino-US trade war, prompting investors to turn to hedge assets, leading to a further upside-down of the U.S. Treasury yield curve.
Ten-year bond yields, a vane reflecting market perceptions of overall economic health, have fallen faster than two-year bond yields, exacerbating the upside-down trend between the two. A few days after the United States and China raised tariffs on each other in the world's two largest economies, this widely accepted indicator of economic recession put pressure on the dollar.
"On the yield curve of the two-year/10-year bonds, you see that the upside-down situation is even worse. Nowadays, it's hard to blame a specific factor for the upside-down, although it may be one of the factors that lead to a general sense of hedging in the market, "said Brian Daingerfield, macro strategist at RBS Securities.
Last Friday, China said it would impose retaliatory tariffs on US goods worth $75 billion. Hours later, the United States said it would raise tariffs on $250 billion of Chinese goods imported to the United States from 25% to 30% from October 1.
Trump said Monday that Chinese officials had contacted U.S. trade officials the previous night and offered to return to the negotiating table, triggering a wave of so-called risky deals.
However, a spokesman for the Chinese Foreign Ministry said Tuesday that he was unaware of any recent phone calls between the two sides, after U.S. Treasury Secretary Nuchin said the two sides had contacts. China's Ministry of Commerce usually issued statements on trade calls, but did not respond to requests for comment.
The yen rose 0.34% to 105.75 yen against the dollar, after hitting a two-and-a-half-year high the previous day. The yen has appreciated 3.45% against the dollar this year as trade tensions have intensified.
Otherwise, the EUR = fell slightly to $1.1090 against the dollar, but left an earlier low, as the Italian stock market rose, and the market expected Rome to form a new government to avoid early elections.
"The general feeling is that we are still uncertain in many ways, whether in the Sino-US trade war, European politics, Britain's withdrawal from Europe, the general slowdown in China's economy or other issues," Daingerfield said.


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