Treasury yields slip on renewed trade-war fears

Treasury prices rose slightly on Thursday, leading yields to dip lower, as the U.S. announced impending tariffs on steel and aluminum important from Canada, Mexico and the European Union.

The trade developments overshadowed somewhat better sentiment surrounding Italy��s political scene, which had allowed yields to rise in the European session.

What are yields doing?

The yield on the benchmark 10-year U.S. Treasury note TMUBMUSD10Y, -1.11% �slipped 2 basis point to 2.829%, while the 2-year Treasury note yield TMUBMUSD02Y, +0.00% �declined 1 basis point to 2.407%. The yield on the 30-year Treasury bond TMUBMUSD30Y, -1.36% slipped 2 basis points to 2.998%.

Yields and bond prices move in opposite directions.

What��s driving markets?

The U.S. announced it would impose import tariffs on steel and aluminum products from Canada, Mexico and the EU come Friday. The tariffs had been announced previously, but the three trade partners had received exemptions. Retaliatory actions are expected, raising fears of trade wars once more.

Canada, Mexico and the U.S. are also still in midst of renegotiating the North American Free Trade Agreement, for which market participants had expected a resolution this month.

Read: Trump ready to pull tariff trigger on EU �� what analysts say investors should expect

Meanwhile, Italy��s political drama cooled off a little on Thursday, leading Italian government bond yields to retreat further after spiking Monday and Tuesday on fears an impasse could led to new elections and a de facto referendum on the country��s euro membership. But renewed efforts by leading anti-establishment parties to form a government have helped ease worries.

The yield on Italy��s 10-year bond TMBMKIT-10Y, -2.12% �declined 10 basis points to 2.805%.

What are analysts saying?

��The huge spike in Italian bond yields, and associated prices, such as CDS, might turn out to be a blessing in disguise,�� said Steven Barrow, currency and fixed income strategist at Standard Bank.��We say this because such a quick and dramatic rout in bond prices should alert Italian politicians to the reality that political instability, especially if it reflects any sort of euroskepticism, can pull the rug out from under any economic program.

��If, instead, yields had only drifted moderately higher, politicians might have been more disposed to continue on the path of political instability,�� he said

What does economic data show?

Spending on consumer goods in April rose sharply for a second straight month, up 0.6%, and pointing to a pickup in U.S. growth in the second quarter.

The PCE index, the Fed��s favored inflation gauge, was up 0.2%, while the core rate, stripping out food and energy, rose the same amount. The rate over the past 12 months was unchanged at 2%, while the year-over-year core rate remained at 1.8%.

First-time jobless claims fell 13,000 to 221,000 in the week ended May 26.

The Chicago purchasing managers index came in at 62.7, compared with the previous level of 57.6, while pending home sales slumped 1.3% in April.

In other assets, the dollar, measured against six rivals in the ICE U.S. Dollar Index DXY, -0.08% headed lower.�U.S. stocks were mixed, and only the Nasdaq Composite Index COMP, -0.20% traded at a small gain.�

We Want to Hear from You

Join the conversation

Comment Related Topics Bonds Investing Federal Reserve Quote References TMUBMUSD10Y -0.03 -1.11% TMUBMUSD02Y +0.00 +0.00%