Bond Report: 10-year Treasury yield inch toward 7-year high

Bond Report: 10-year Treasury yield inch toward 7-year high

Treasury yields ticked higher in early Wednesday trading, extending this week’s climb, as investors looked past trade tensions.

The 10-year Treasury note yield TMUBMUSD10Y, -0.33% rose 1.1 basis points to 3.059%, close to the seven-year high at 3.109%. The 2-year note yield TMUBMUSD02Y, -0.44% was up 2.807%, a decadelong high, while the 30-year bond yield TMUBMUSD30Y, -0.35% advanced 0.9 basis point to 3.204%, the highest since May 22. Bond prices move in the opposite direction of yields.

The bond market continued to see pressure as stocks across the world brushed off the growing trade tensions from the U.S.’s decision to slap a 10% tariff on another $200 billion of Chinese goods, though those import duties will rise to 25% by the end of the year. China retaliated by imposing tariffs on $60 billion in U.S. exports, prompting a threat by President Donald Trump to target an even wider range of Chinese goods.

See: How trade-war fears have become less of a factor for stock-market investors

Asian stock markets extended their climb. The Japanese Nikkei NIK, +1.08% and the Shanghai Composite SHCOMP, +1.14% ended higher by more than 1%. The helped alleviate demand for haven assets like U.S. government paper.

Analysts say tariffs can have contradictory consequences for the bond market. If they stoke price pressures, bonds can suffer, but if the economy slows from weaker trade, then bonds can thrive.

“We still believe that there is scope for a settlement sometime in the first half of 2019, risks that the trade war goes beyond our current assumptions have increased. Should this happen, the impact on the U.S. economy would likely be more meaningful,” said analysts at Deutsche Bank.

They estimated that if the U.S. slapped a 25% tariff on $250 billion Chinese imports, inflation could rise as much as 50 basis points, or 0.50 percentage point.

Some investors fear China will use other means than tariffs to retaliate against the U.S., with some suggesting the second largest economy could sell its Treasury holdings to push the U.S.’s borrowing costs higher. According to the widely-watched Treasury International Capitol report, China’s holdings of U.S. government paper fell to a six-month low of $1.17 trillion in July.

On the data front, August’s housing starts numbers will come in at 8:30 a.m. Eastern. Economists polled by MarketWatch expect an annualized pace of 1.249 million.

Providing critical information for the U.S. trading day. Subscribe to MarketWatch’s free Need to Know newsletter. Sign up here.

Related posts