Treasury bonds and related exchange traded funds continued to strengthen Monday as investors’ appetite for riskier assets waned in face of uncertainties surrounding President Donald Trump’s policies.
Over the past month, the iShares 20+ Year Treasury Bond ETF (NYSEArca: TLT) gained 2.1%, PIMCO 25+ Year Zero Coupon US Treasury (NYSEArca: ZROZ) increased 3.2% and Vanguard Extended Duration Treasury ETF (NYSEArca: EDV) advanced 2.9%, with 30-year Treasury bond yields now hovering around 2.99%.
U.S. Treasury yields experienced their largest one-day drop in more than two weeks as investor concerns over Trump’s tough stance on trade triggered safe-haven demand for debt, reports Richard Leong for Reuters.
The administration’s move to restrict trade, along with a dearth in details over proposed tax cuts, infrastructure spending and deregulation, has sapped the momentum in the recent Trump trade that helped push equities toward record heights.
On Monday, Trump told U.S. manufacturers he would impose a large border tax on those that import products into the U.S. after moving operations overseas.
“The trade comments were a bit unsettling so stocks sold off, offering Treasuries some safe-haven support,” John Canavan, market strategist at Stone & McCarthy Research Associates in Princeton, told Reuters.
Moreover, Trump signed an executive order to withdraw the U.S. from the Trans-Pacific Partnership deal with Asian trading partners.
“The market might want to see tax cuts and infrastructure spending first, but this shouldn’t be a surprise. Renegotiation of trade agreements is what he campaigned on,” Mike Lorizio, senior fixed-income trader at Manulife Asset Management, told Reuters.
However, investors were concerned that these protectionist policies would hurt U.S. exports and push up prices on imported goods. The America First mantra could also lead to retaliation from other countries and add to further friction between trading partners.
Tom di Galoma, managing director of government trading and strategy at Seaport Global Holdings, argued that the risk is that the U.S. growth “will soften dramatically” on a slowdown in global trade driven by Mr. Trump’s policy, the Wall Street Journal reports.
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