The closely watched spread between two-year and 10-year bonds dipped below 0.1 percentage point on Tuesday, the lowest since before the last recession and continuing a slide that began in October. As the spread between two- year and 10-year securities neared zero, the gaps between some other yields, including the two year and three year, were already upside down. For U.S. investors, the most commonly referenced yield curve is a plot of 2-year and 10-year Treasury yields, which have yet to invert at this point. "You have worries about growth". A drop in inflation expectations for example, another component in the interest demanded by investors to hold bonds, would be bad news for a central bank hoping to keep inflation anchored at 2 percent.
On Tuesday, the greenback shed almost 0.8 percent against the yen, which acts as a safe haven in times of geopolitical and financial turmoil as Japan is the world's biggest creditor nation.
On Monday, stock markets around the world got some relief after Washington and Beijing agreed to temporarily end their trade war during talks at the G20 summit in Argentina. Asked about the possibility of an inversion at a June press conference, Powell said "what we really care about is what's the appropriate stance of policy".
"As soon as investors digested the information from the discussions they focused on the uncertainties and lack of details", said Ryan Nauman, market strategist, Informa Financial Intelligence, Zephyr Cove, Nevada. Like the airline passenger who hates turbulence and gets calmed down if the stewardess looks unafraid. "But if not remember, I am a Tariff Man".
The yield curve "tells me that it's wise to be patient here", Kaplan told Reuters in Laredo, Texas where he is meeting with business leaders and bankers.
The dollar edged lower on Tuesday as U.S. Treasury yields fell, feeding fears that the Federal Reserve could pause in its rate-hike cycle, while an inversion in part of the yield curve was taken as a red flag for a potential recession.More news: Here's how Wisconsin Republicans want to strip power from incoming Democrats
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Gundlach said the Fed will need to be especially careful in its choice of words when they meet this month to deliver on their promised rate hike.
After months in which concern about the yield curve had eased, its sudden narrowing on December 3 could disrupt what had seemed a strong consensus at the Fed to continue raising rates through 2019. Gundlach, known on Wall Street as the Bond King, said the Treasury yield curve from two- to five-year maturities is suggesting "total bond market disbelief in the Federal Reserve's prior plans to raise rates through 2019".
Sterling briefly drooped to a 17-month low on the day, before recovering ground to trade little-changed, in a volatile session dominated by Brexit-related headlines. -China trade agreement faded.
Hong Kong's Hang Seng retreated 1.55 percent and the Shanghai Composite Index dipped 0.2 percent.
The threat of slowing economic activity also weighed on oil prices, but Brent futures trimmed losses to stand 0.4 percent lower at $61.8 per barrel.