Treasury prices climbed on Monday, pushing yields lower, after President Donald Trump threatened to raise tariffs on Chinese imports, drawing jittery investors into haven assets like U.S. government paper.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -0.18% fell 3.3 basis points to 2.498%, its lowest since April 10. The 30-year bond yield TMUBMUSD30Y, -0.23% fell 1.9 basis point to 2.907%, also its lowest level since April 10. The 2-year note yield TMUBMUSD02Y, -0.53% retreated 3 basis points to 2.309%. Bond prices move inversely to yields.
What’s driving the market?
President Donald Trump threatened to raise tariffs on $200 billion of Chinese imports to 25% from 10%, citing slow progress in trade negotiations. He also added that tariffs would be applied to the rest of the untaxed $325 billion of Chinese imports. In response, Beijing said it was deliberating whether to stop a planned delegation to Washington this week, though it walked back its comments on Monday.
A setback to trade negotiations may stir up fears about the global economy’s health as the eurozone and China attempt to stabilize from their recent slowdown. Expectations for softer global growth has historically proven a boon for government bonds, analysts said.
See: Trump tweets tariff threat on Chinese goods, roiling global markets
Read: Investors are pushing the panic button on U.S.-China trade talks, analyst suggests
Trump’s remarks took investors across the world by surprise, with many on Wall Street previously expecting Washington and Beijing to reach a trade deal within the next few weeks. The S&P SPX, -0.45% and Dow Jones Industrial Average DJIA, -0.25% were still on course to end lower on Monday, after coming off sharply from session lows.
Asian equities saw a brutal fall. China’s CSI 300 index 000300, -4.40% closed lower by about 5.8% and Hong Kong’s Hang Seng Index HSI, +0.76% lost 2.9% on Monday.
What did market participants say?
“If you take a [trade deal] off the table, you have to introduce some pricing adjustment in Treasurys and introduce a greater risk of slower global growth,” said Gary Pzegeo, head of fixed income at CIBC Private Wealth Management.
“Trade experts are uncertain how to interpret the President’s Sunday threat to impose further tariffs on imports from China. Is he trying to apply pressure to get a deal done this week? And if so, will this work, or will it backfire?” wrote Kit Juckes, global strategist at Société Générale.
What else is on investors’ radar?
Philadelphia Fed President Patrick Harker said he expected one rate increase this year despite the recent decline in inflation data.
Traders will gear up for a raft of bond auctions later this week, with the Treasury Department set to sell $78 billion of notes and bonds across 3-year, 10-year and 30-year maturities.
See: For the Fed, the mantra is now ‘it’s inflation stupid’
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