Bond Report: 10-year Treasury note yield attempts to push further above 3%

Bond Report: 10-year Treasury note yield attempts to push further above 3%

Treasury prices fell on Tuesday, pushing yields higher, on after equities looked past a round of U.S. tariffs on $200 billion of Chinese imports.

The 10-year Treasury note yield TMUBMUSD10Y, +1.73% rose 3 basis points to 3.031%, near a more than a three-month high. In other trading, the 2-year note yield TMUBMUSD02Y, +0.76% was up half a basis point to 2.791%, hovering at around a decadelong high, while the 30-year bond yield TMUBMUSD30Y, +1.88% was up 3.9 basis points to 3.176%, close to a more than a three-month high. Bond prices move in the opposite direction of yields.

Treasurys came under pressure after stocks shrugged off rising trade tensions, easing appetite for haven asset. The S&P 500 SPX, +0.61% and the Nasdaq Composite COMP, +0.91% are up by more than 0.6%, while in Asia, the Shanghai Composite SHCOMP, +1.82% jumped 1.8%. The move was in contrast to previous episodes where trade uncertainty stirred a rally in U.S. government paper.

President Donald Trump went ahead with the second round of tariffs on top of the initial tariffs on $50 billion of Chinese goods. Though the move was widely expected, it will raise the stakes for Beijing and Washington who have struggled to go back to the negotiating table.

Chinese senior officials have said they would not return to trade talks if the U.S. proceeded with the second salvo of import duties. China’s Commerce Ministry on Tuesday said in a statement that China “has no choice but to undertake synchronous retaliation.” On Tuesday, China fired back with its own set of tariffs on $60 billion of U.S. goods.

See: China-U.S. trade war will last for ‘maybe 20 years,’ says China’s best known CEO

“The latest measures contain some phasing elements, creating further room to maneuver. However, it is currently not sure whether new talks between the two countries will start at short notice, as it remains to be seen whether China is willing to resume talking under such pressure,” wrote Arjen van Dijkhuizen, senior economist for ABN AMRO group.

Some market participants suggested the selloff in the bond market could also be motivated by fears China could make use of other measures to retaliate against the U.S., given that Beijing has limited room to launch tit-for-tat tariffs because its U.S. imports are relatively small. As the largest foreign owner of Treasurys, some say China could attempt to dump the bonds to drive up U.S. borrowing costs.

“The market is a afraid of a lasting trade war with China and how the Chinese could possibly retaliate. One effective way could be to start selling their large U.S. Treasury bondholdings,” said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.

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