Bond Report: 10-year Treasury note yield edges up to more than three-month high

Bond Report: 10-year Treasury note yield edges up to more than three-month high

Treasury prices fell slightly on Monday, nudging yields higher, as investors waited for the U.S. to levy additional tariffs on Chinese imports, a move that threatens to deepen the trade spat between Washington and Beijing.

The 10-year Treasury note yield TMUBMUSD10Y, -0.25% rose a single basis point to 3.001%, its highest since May 23. The 30-year bond yield TMUBMUSD30Y, -0.12%  was up by 0.8 basis point to 3.137%, also its highest since May 23. The 2-year note yield TMUBMUSD02Y, +0.01% added half a basis point to 2.786%, highest since June 2008. Bond prices move in the opposite direction of yields.

Bonds struggled to selloff after stocks were held back by trade fears, with the tech-heavy Nasdaq Composite COMP, -1.43% down more than 1%. Haven assets like U.S. government paper tend to outperform in periods of growing uncertainty over future trade relations. The 10-year Treasury note yield circled around the 3% level throughout Monday’s trading.

President Donald Trump said he would make an announcement on trade with China after the close of the stock market.

In a week lacking first-tier economic data, investors said they would closely watch how U.S.-China trade tensions escalates ahead of the U.S.’s impending round of tariffs on $200 billion of Chinese imports.

Opinion: Why President Trump will keep escalating the trade war with China until after the midterm elections

Besides sapping appetite for risk, tariffs could change the outlook for inflation, a key determinant for where bonds trade. Analysts say if the looming tariffs are not implemented, the mere threat will weigh on commodity prices and thus prices for imports. But if implemented, tariffs should spur price increases, crimping demand for government paper.

“So long as large scale tariffs on China are a threat, not a reality, the effect will be disinflationary,” wrote Ward McCarthy, chief financial economist for Jefferies.

See: Bond bulls are unprepared for an end to Trump’s ‘tariff trumpeting’

Italian bonds rallied after a report from Corriere della Serra said Italy’s economy minister would seek to keep the 2019 budget deficit from rising above 1.6% of the gross domestic product, in line with the European Union’s strict fiscal rules. Investors have kept close tabs on the budget process as many fear the antiestablishment government, elected on a mandate of increased public spending, will bust the EU’s fiscal caps, risking a clash between Rome and Brussels.

The 10-year Italian government bond yield TMBMKIT-10Y, -3.97% slipped 11.9 basis points to 2.865%, while the 10-year German bond yield TMBMKDE-10Y, +1.26% rose a basis point to 0.456%, its highest since Aug. 2, according to Tradeweb data.

Read: Relief rally for Italian bonds overlooks potential budget snags, say analysts

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