While trade fears seemed to ease out of U.S. equities, bond prices were under pressure as the yields went higher across the board with the two-year Treasury note hitting a decade high to settle at 2.812. The benchmark 10-year yield ticked higher to 3.076 and the 30-year crept up to 3.225.
Per a report from MarketWatch, analysts say that “tariffs can have contradictory consequences for the bond market. If they stoke price pressures, bonds can suffer, but if the economy slows from weaker trade, then bonds can thrive.”
After the markets closed on Monday, the Trump administration announced it would be moving forward with imposing a 10% tariff on $200 billion worth of Chinese goods that includes a step-up increase to 25% by the end of the year. The administration moved forward with the tariffs despite both economic superpowers in the midst of scheduled trade talks to ease tariff tensions.
Tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country – and yet cost increases have thus far been almost unnoticeable. If countries will not make fair deals with us, they will be “Tariffed!”
— Donald J. Trump (@realDonaldTrump) September 17, 2018
The list of goods affected by the new round of U.S. tariffs was apparently modified by the White House, which removed about 300 goods from an initial list that included smart watches, certain chemicals, bicycle helmets, high chairs, and other goods. Both the U.S. and China are said to have scheduled talks to address the latest trade issues later this month, but it is uncertain whether these new round of tariffs have put those purported talks on hold or abandoned altogether.
Related: China Responds to Latest Tariffs with $60B of their own on U.S. Goods
In less than 24 hours, China responded with $60 billion worth of tariffs on U.S. goods beginning on Sept. 24. The new round of tariffs from China are said to affect a list of 5,207 products within a range of 5 to 10% as both the U.S. and China have already slapped each other with tariffs worth $50 billion total.
“We still believe that there is scope for a settlement sometime in the first half of 2019, risks that the trade war goes beyond our current assumptions have increased. Should this happen, the impact on the U.S. economy would likely be more meaningful,” said analysts at Deutsche Bank.
Rising Euro Bond Yields
Elsewhere in the world, European bond markets are experiencing similar yield rises as the benchmark 10-year bund reached 0.5% for the first time in almost two months, which extended its September rise to 15 basis points. Later today, $3.51 billion in notes from the German government will be offered for sale.
“Rising sovereign bond yields around the world are driving a weaker USD and a weaker JPY due to the ability of risk sentiment to rally at the same time,” said Saxo Bank’s head of FX strategy John Hardy. “Yes, in many cases the US rate rises are a bit sharper than elsewhere, but the sense of some convergence nonetheless (core EU yields have risen nearly as fast as US yields) is helping other currencies to keep pace with the greenback and even rally sharply.”
For more market updates, visit the ETFTrends.com.