Yield curve flattens to pre-crisis levels

The spread between the two- and 10-year Treasury yields dropped below 15 basis points for the first time since mid-2006 as the yield on the 10-year bond fell from near 2% at Wednesday's close to 1.74% by midday Monday. Between the Federal Open Market Committee's July 31 rate cut and Monday trading session, the two-year yield fell to about 1.59% from 1.87%.

In the months leading up to the 2008 financial crisis, the yield curve dipped negative or inverted in late 2006 and into early 2007. A flat or inverted yield curve typically gauges investors' collective outlook on future economic prospects.

Much of the decline in yields can be attributed to recently escalated trade tensions between the U.S. and China — a relationship closely aligned with global economic growth — which triggered an investor flight to safety, in most cases U.S. Treasuries. Tensions ratcheted up late last week with the White House calling for new tariffs on global goods, which Beijing countered with a significant currency devaluation and a halt to imports of U.S. agricultural goods.

In midday trading Monday, the S&P 500 was down 2.6% from Friday's close while the blue chip Dow Jones Industrial Average was down 2.7%. The broad market Chinese index, the Hang Seng index, was down 2.9% on the day.