The last time interest rates moved this rapidly and dramatically, Donald Trump had just been elected president, and the world saw the promise of faster economic growth and a long-anticipated pickup in price inflation.

Interest rates, back in November, 2016 snapped higher in the six days after Trump won the election. Now, it’s the mirror opposite. Global rates, fueled by the actions of concerned central banks, are sinking rapidly, with the world fearful that President Trump’s trade wars will stall global growth to a sputter.

The benchmark U.S. 10-year yield fell to a fresh 3-year low and the 30-year bond rate neared an all-time low Wednesday, after three central banks cut interest rates overnight, kicking off a new leg down in global yields. The 10-year was at 1.68%, but reached a Wednesday morning low of 1.59%, well below the 2.07% it was at just a week ago, before the Fed cut interest rates.

Growing concern that the U.S. and China will remain far apart on trade differences has fed into an already anxious global bond market, worried that growth is waning in China, the rest of Asia and Europe. Trump’s trade policy is not the only factor pushing yields down, but the uncertainty it has caused is a big one.

Germany’s 10-year bund yields hit a new low of negative 0.6% Wednesday and rates all over the world fell together. Reports of a 1.5% decline in German industrial production added to negative sentiment, meshing for a nervous market with the idea that global manufacturing is slowing down as uncertainties grow about trade.

The U.S. 10-year is the benchmark, used to price mortgages and other loans, and its decline signals a fresh round of lower lending rates. The 30-year bond fell 41 basis points in the last six sessions, the same type of move it made in six days after the 2016 election, but in the opposite direction on the growth hopes of a Trump economy.

“What’s different about is there are more global factors that come into play versus just domestic factors. There was a point in the time when nobody really looked at where German bund yields were. Today it matters. All of these rest of the world factors have to be a bigger component of our decision making process today,” said Jim Caron, portfolio strategist at Morgan Stanley Investment Management.

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The swift drop in yields began last week and made another big move after China Monday upped the ante in the trade war by letting its currency drift below the former red line of 7 yuan to the dollar. Trump last week had threatened new tariffs on $300 billion in Chinese goods as of Sept. 1 even though negotiators for both countries had said talks would resume in September.

“Almost every client I talk to thinks rates are going down. There are a lot of long faces and dark scenarios. Who knows if they might come to fruition?” said Michael Schumacher, director of rates at Wells Fargo. “It’s been quite a run. Maybe the whole trade thing is causing people to lose confidence overall. When you think of the history of these trade deals, it’s not very good.”

Schumacher said it’s not clear when either China or the U.S. will concede and restart negotiations. “What are the chances that actually people step back from the brink any time soon? Whose interest is in? It seems like [Trump] would benefit most if he did it next year.” Some strategists believe that China is stretching out the trade war so that it can gauge whether Trump will win re-election, and there’s also a theory that Trump will want a trade victory just before the election and that he would be open to criticism from his Democratic opponent if he caves in now and strikes a weak deal with China.

The low yields are reflecting heightened worries about global recession but not necessarily a recession, said strategists.

“It’s a matter of investors are still trying to grapple with whether there’s been a meaningful change in the outlook for the global economy. It’s still unclear. It’s in the hands of two men Xi Jinping and Donald Trump. It’s not easy to get into the mind of either of those two men,” said Tony Crescenzi, Pimco executive vice president and member of its investment committee.

When global rates move in tandem, the German bund can clearly be a driver for U.S. yields. Investors see U.S. Treasurys as innately more attractive, because of the depth and liquidity of the U.S.market and the fact U.S. yields have been higher, while other global benchmarks are negative.

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Rates are also moving lower on the expectation that the Federal Reserve and the more than 20 central banks that have cut interest rates since spring will keep cutting. The U.S. yields, which have never been negative, are relatively more attractive.

“Yields could fall with greater acuity or speed now than in the past because of the belief that policy rates could stay low for a long time has become well entrenched. It’s clearly a global phenomena,” said Crescenzi. “The U.S. is still the most attractive duration in the world. The nation with the most room for yields to decline is the United States. It doesn’t mean that Treasurys are not rich. They could be but as a hedge against riskier components of investors’ portfolios, Treasurys have appeal to global investors.”

Trump has pushed for the Fed to move faster and further but he is also setting off a spiral that some strategists, at Pimco and Guggenheim and elsewhere, say could end up in U.S. negative interest rates, in the event of another recession. Since the financial crisis, the bond market, propped up by the Fed’s quantitative easing for years, is hardly going to act the way it did in the past.

Talk in the bond market is that now, instead of yield, investors are jumping into bonds for their price appreciation and the demand is strong. “We care more about the return of our money, than the return on it,” said Crescenzi.

Crescenzi, also a portfolio manager Pimco, said since the financial crisis, there is a new view of neutral in financial markets, or the level where central banks would no longer need to cut rates or raise them. For the Federal Reserve, that level on paper is 2.5% but the Fed cut its benchmark fed funds target rate below that, to 2 to 2.25% last week, its first cut in more than a decade.

The Fed last cut rates when it took the fed funds target rate to the zero bound to fight the financial crisis in 2008. That has created a new low bar for U.S. rates .

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“You’re not buying it because 10-year notes have a wonderful coupon and yields are high. You’re buying it because the price can go up from these levels,” said Caron. “That’s the trend in global fixed income markets. If zero is no longer a bottom, I can’t say that for the U.S., but certainly Europe, there’s no longer a bottom.”

Strategists say it’s difficult to say where the current buying spree will end, but Scott Minerd, global CIO at Guggenheim, said technically the market is looking stretched but the 10-year could see a 1.4% yield before reversing. Its record low was 1.32% right after the U.K.’s Brexit vote in 2016.

Minerd, in an appearance on CNBC, repeated his view that U.S. interest rates could reach zero or even turn negative. “I do think ultimately by the time we get to the next recession, zero is definitely in the cards and probably negative yields,” he said, noting European and Japanese yields have been negative.

Schumacher said, given the uncertainties, it’s hard to say where the decline in yields will stop. His year end call is for a 2.05%.

“We’re assuming the trade thing moderates and there’s not a hard Brexit,” he said, adding a case could also be made for a sharp move lower.

“Let’s assume the U.K. and the rest of Europe come back from vacation and say Brexit is right around the corner” and it’s not going well, Schumacher said. “It’s probably pandemonium, and if Trump and the U.S. impose tariffs on Sept. 1, i think you get a decent risk off move.”

Crescenzi said the bond market is moving a lot more on behavioral factors than it used to, and risk premium is no longer acting the same way it did.

“The rule books are getting tossed.. Models are getting tossed,” he said. “One has to assess the degree of fear investors have. Fears are begin stoked by trade tensions..the global markets are facing a shift away from ordinary uncertainties.”



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