Treasury prices fell on Tuesday, pushing yields higher, after equities looked beyond a round of U.S. tariffs between the U.S. and China.
The 10-year Treasury note yield TMUBMUSD10Y, +2.32% rose 4.6 basis points to 3.048%, near a more than a three-month high. If the yield for the benchmark maturity breaks above 3.109%, it would set a fresh seven-year peak, according to Tradeweb data.
In other trading, the 2-year note yield TMUBMUSD02Y, +1.51% was up 1.3 basis points to 2.799%, a decadelong high, while the 30-year bond yieldTMUBMUSD30Y, +2.29% picked up 5.7 basis points to 3.195%, close to a more than a three-month high.
Bond prices fall as yields climb.
Treasurys came under pressure after stocks shrugged off rising trade tensions to rally, which was reflected in weakened appetite for havens. The S&P 500 indexSPX, +0.54% and the Nasdaq Composite Index COMP, +0.76% saw firm gains, 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. 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
Still, many market participants viewed the latest development in trade as less severe as feared, with China tariffs starting at 10% instead of 25% (though they climb to that level by year-end).
“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 strategists 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.
