U.S. government debt yields fell Wednesday as investors worried that soured trade relations between the U.S. and China could hamstring the momentum of the American economy.
At around 7:30 a.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, fell to 2.43%, while the yield on the 30-year Treasury bond dropped to 2.844%.
Wall Street’s renewed anxiety over negotiations between Beijing and Washington began Sunday, when President Donald Trump tweeted that current 10% tariffs on $200 billion of goods imported from China will be increased to 25% on Friday.
Trump’s weekend message — which at the time appeared to come without provocation — was preceded by a diplomatic document from China that included reversals that undermined key U.S. demands, Reuters reported Wednesday.
In each of the seven chapters of the draft trade deal, Beijing reportedly removed commitments to change laws to remedy theft of intellectual property, reneged on access to financial services, and deleted agreements on currency manipulation. High-level Chinese and U.S. officials will meet in Washington over the next two days in an attempt to reach a permanent solution and avoid the telegraphed tax increase.
With trade relationships and economic growth concerns back in the limelight, Wall Street has pivoted toward assets believed to be safer, such as government debt.
“Say goodbye to that hoped for 2nd half recovery if we can a ramp up in trade tensions with China,” Peter Boockvar, chief investment officer at Bleakley Advisory Group, said in an emailed note. “I’m all for getting China to change their ways and protecting US interests but the tool of tariffs in order to achieve it has its consequences.”
China’s exports unexpectedly fell and its imports rose for the first time in five months in April, according to customs data released Wednesday. Exports fell 2.7% year over year in April following 14.2% rally in March, falling short of consensus estimates for a 3.0% increase.
On the auctions front, the Treasury is set to sell $27 billion in 10-year notes.