Mellon's Brendan Murphy believes there's nothing fundamentally wrong with the economy despite Treasury yields dropping to their lowest level since September 2017.

According to the firm's head of global and multisector fixed income strategies, falling yields aren't sending Wall Street a recession warning.

Rather, he suggests it's a temporary "flight to quality" trade that's been taking a life of its own as U.S.-China trade tensions escalate.

"Treasurys have acted as a really good hedge at the portfolio level, and that's driven a lot of extra demand," Murphy told CNBC's "Trading Nation" on Wednesday.

With Europe providing investors with negative yields, he contends the United States is one of the few places they can go for yields right now. Murphy warns that this could put added stress on the market.

"You should be careful," said Murphy, who's responsible for $40 billion in assets under management. "It wouldn't take much in terms of the rhetoric around trade, I think, to lead to a bigger sell-off in terms of Treasury yields."

On Wednesday, the stock market sold off as the yield-curve inversion between the 3-month Treasury bill and the 10-Year note widened to its deepest level since the financial crisis. An inversion occurs when the yield on shorter-term bonds surpasses that on longer-term notes.

Murphy, who also serves at the Dreyfus/Standish Fixed Income Global Fund lead manager, believes the 10-Year yield could hit a low around 2.05% in the near term. And, he's not ruling out a steeper drop.

"If we don't get any progress on trade, you could test lower to that level," he said.

However, it's not his base case. Murphy expects market volatility will push the U.S. and China to cut a trade deal. Once that happens, he predicts yields will climb.

"Ultimately, we see Treasurys in a 2 to 3% range over the course of the rest of the year," Murphy said.