It’s impossible to forecast where the U.S.-China trade confrontation is going, although given what the bond market is doing, it’s no place good.

The markets are trading on headlines that may become economic events, but the worst-case scenario of much higher tariffs and a much bigger slowdown in global trade has not developed yet. In other words, I don’t think we are yet at the point of no return in this trade negotiation.

I have long held the view that, because of deflationary trends in Europe and Japan, the 10-year U.S. Treasury will fall to less than 1%. The present deterioration in relations with China is adding to those deflationary trends, so a longer cycle of acrimonious recrimination actually has a deflationary impact because of the slowdown in flow of goods and services, and not inflationary because of higher tariffs, as some investors think (see chart).

Read: Trade war is raising the risk of U.S. recession, Goldman Sachs warns

Low interest rates give a boost to companies with good balance sheets, strong cash flows and high dividend yields that have more limited exposure to the trade confrontation. I can’t be more specific for the purposes of this piece — although I will try to have more picks in future missives — as in my situation I have some hard restrictions on “buy this” or “sell that,” so what I say is insight for people to make their own decisions; I am sort of over-intellectualizing it out of necessity and compliance. That said, the U.S. semiconductor sector does see some serious headwinds in further escalation of the trade war.