Treasury prices rose on Tuesday, pushing yields lower, as the threat of an escalating U.S.-China trade battle underpinned appetite for assets perceived as havens.
What are Treasurys doing?
The 10-year Treasury yield TMUBMUSD10Y, +0.15% retreated 5 basis points to a five-week low of 2.448%, logging its biggest daily decline since March 22. Bond prices move in the opposite direction of yields.
The 2-year note yield TMUBMUSD02Y, +0.00% was down 2.6 basis points to 2.282%, while the 30-year bond yield TMUBMUSD30Y, +0.17% fell 4.5 basis points to a five-week low of 2.862%, marking its biggest daily drop since March 27.
What’s driving Treasurys?
U.S. Trade Representative Robert Lighthizer on Monday said the Trump administration would increase tariffs on Chinese goods starting from Friday. This comes after President Donald Trump threatened over the weekend to take such action.
Lighthizer and Treasury Secretary Steven Mnuchin charged that Beijing had retreated from “some of the language” that had been agreed upon in previous talks.
The S&P 500 SPX, -1.65% and the Dow DJIA, -1.79% fell sharply on Tuesday, sparking demand for haven assets.
See: Stock-market strategist says Wall Street should shake off Trump trade anxieties and ‘buy this dip’
China’s Commerce Ministry said Vice Premier Liu He would visit Washington for trade talks on Thursday and Friday. Investors had been worried that if Liu He was missing from high-level trade talks in Washington this week, it might signal China’s lack of desire to pursue trade negotiations after Trump’s warning.
What did market participants say?
“Treasurys rallied late yesterday after U.S. Trade Representative said out loud what had been suggested all day in Asian news reports: The U.S. feels China backtracked on technology protections already agreed to in earlier talks, so tariffs are back on the table,” wrote Jim Vogel, an interest-rate strategist at FTN Financial.
“Most likely, even the Fed would agree an unsatisfactory conclusion to U.S.-China trade talks would force it to rethink current monetary policy,” said Vogel.
What else is on investors’ radar?
Fed Vice Chairman Richard Clarida said the decline in core inflation didn’t necessitate an interest-rate cut, pushing back on demands for easier policy from the White House. And Fed vice chair for supervision Randal Quarles said he was comfortable with an inflation rate below but close to 2%.
As for other central banks, the Reserve Bank of Australia said it would keep rates on hold at 1.50% on Tuesday, surprising investors who had expected a rate cut. The Australian 10-year government bond yield TMBMKAU-10Y, -2.46% rose 4.3 basis points to 1.747%.
Separately, traders snapped up $38 billion of 3-year notes at auction. The bond-market can be influenced by debt sales as broker-dealers make room for the incoming supply.
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