Treasury yields struggled for direction on Monday as traders awaited the latest salvo in the U.S.-China trade battle.
The 2-year Treasury note yield TMUBMUSD02Y, +0.31% rose 0.8 basis point to 2.715%, its highest since July 2008. The 30-year bond yield TMUBMUSD30Y, +0.21% fell 1.6 basis points to 3.087%, while the 10-year note yield TMUBMUSD10Y, +0.03% was down 0.7 basis point to 2.937%, after the benchmark maturity logged its largest weekly yield climb since July 23. Bond prices move in the opposite direction of yields.
U.S. bond investors monitored for further trade developments after President Donald Trump said Friday that he was ready to impose tariffs on an additional $267 billion Chinese imports. This was on top of the $200 billion his administration was expected to announce in short order. A flare-up in trade concerns have helped to launch periodic surges into haven assets like U.S. government paper.
Former governor of the People’s Bank of China Zhou Xiaochuan said the Trump administration’s tariffs would not dent Chinese economic growth, and added that Beijing should divert its exports away from the U.S. to other countries. He made the remarks in an interview with CNBC. Yet trade tensions have already show their impact. China’s exports grew just shy of 10% in August, below its average pace for most of the year.
“Attention will be squarely focused on trade risks, particularly between the U.S. and China, as Treasurys are largely looking through risk-on sentiment coming out of Rome,” wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.
The Italian bond market extended its rebound. Investors hope the new Italian government will water down their ambitions and plans for increased fiscal easing, a move that would pit Rome against Brussels. Finance Minister Giovanni Tria said Italian debt yields would fall. He continued to signal the government’s willingness to abide by the European Union’s budget deficit rules, and said the stimulus measures would be introduced gradually.
The 10-year Italian government bond yield TMBMKIT-10Y, +0.00% fell 14.6 basis points to 2.733%, narrowing the premium it commanded over less risky German government paperTMBMKDE-10Y, +0.00% to 232.50 basis points, or 2.33 percentage points.
On the Federal Reserve front, Boston Fed President Eric Rosengren told MarketWatch that the gradual pace of rate increases would limit the danger of overtightening monetary policy. Atlanta Fed President Raphael Bostic said the Fed should pause its hiking cycle when it reaches the neutral rate, the theoretical level of interest rates where monetary policy is neither stimulative nor retarding.