The benchmark 10-year Treasury yield ticked lower to 2.70 as news flooded the capital markets that the U.S. trade deficit fell to a five-month low.
The longer benchmark 30-year yield rose to 3.038 while the shorter duration 5-year yield dropped to 2.507.
After five straight months of increases, the U.S. trade deficit fell with its global partners for the first time during the month of November–a major win for U.S. President Donald Trump who instituted tariffs in 2018 to help close the gap.
On Wednesday, government data released showed the gap closed to $49.3 billion from $55.7 billion in October–an 11.5 percent decline. Economists surveyed by Dow Jones were forecasting a deficit of $54.3 billion.
“I can say two things about trade. One, the numbers are likely to continue to exhibit elevated volatility from month to month as shippers grapple with heightened policy-related uncertainty. and two, today’s data will boost estimates of Q4 GDP growth,” said Stephen Stanley, chief economist of Amherst Pierpont Securities.
Trade Deal Will Have Muted Impact
The hope for the capital markets, of course, is that a trade deal will materialize between the two largest economies. The United States has already slapped tariffs on$250 billion worth of Chinese products, including further threats on more tariffs equal to $267 billion.
On the other hand, China has instituted $110 billion worth of tariffs on US goods, which includes further measures that would affect US businesses that are domiciled in China. In early December 2018, U.S. President Donald Trump and Chinese president Xi Jinping agreed to cease fire on their tariff-for-tariff battle.
Related: Tariffs Will Deepen Recession by Raising Inflation
The truce reached at the G-20 Summit didn’t completely quell investor fears as markets fretted on the notion that a trade deal can only materialize after lengthy discussions between the two economic superpowers. Furthermore, slowing global growth will only offset a permanent trade deal.
“Even if the current talks result in a lasting truce with China, we expect trade to be a small drag on economic growth for most of this year,” said Andrew Hunter of Capital Economics.
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