Canada’s yield curve inverts most in 12 years on Trump’s tariffs threat

ESTEBAN DUARTE

TORONTO The yield curve on Canadian government bonds inverted the most since early 2007 as investors flocked to bonds on concern that Donald Trump’s surprise threat to impose tariffs on Mexican imports could derail the revised North American free trade pact.

Canada’s 10-year yields plunged to trade 17 basis points less than three-month notes, according to data compiled by Bloomberg. The 10-year yield fell five basis points to 1.51 per cent, the lowest in two years.

An inverted yield curve, in which short-term rates are higher than longer-term yields, is considered by some economists a signal that a recession is looming.

Investors are buying long-term bonds after Trump announced Thursday evening a plan to impose a five-per-cent tariff on imports from Mexico to force the Latin American nation to bolster efforts to stop illegal immigration. The move came just hours after Vice President Mike Pence promised to approve the U.S.-Mexico-Canada Agreement this year, in a meeting in Ottawa with Prime Minister Justin Trudeau.

The “new threats of U.S. tariffs on Mexico — even as passage of the new USMCA seemed to be getting closer — is a reminder that no trade agreement or past indications of goodwill is really full protection against a re-emergence of tensions with the U.S. under the Trump administration,” said Nathan Janzen,

RICHARD DREW/AP Washington’s planned tariffs on Mexico’s imports led to Canada’s inverted yield curve, seen as a sign of a looming recession.