Treasury yields rose on Monday afternoon as the US stock market recovered and fears of a trade war eased after senior Republicans urged President Donald Trump to reconsider his threat to impose tariffs on imported steel and aluminium. US House Speaker Paul Ryan urged the Trump administration to hold off on implementing new tariffs, citing risks to the economy. Fellow Republican Kevin Brady, the top House legislator on trade, said American consumers should not be forced to pay more for goods.
President Trump nevertheless said he was not backing down on the plan, saying he did not think there would be a trade war due to the tariffs. Trump has touted the planned tariffs as a way to revive the US steel and aluminium industries. "A trade war on steel and aluminium is going to help a small number of people and it's going to hurt a lot more and drive up prices," said Mary Ann Hurley, vice president, fixed income trading at D.A. Davidson in Seattle.
The yield on the US benchmark government bond was last at 2.884 percent, up 2.7 basis points from its last close. Trump's determination to push ahead with a 25 percent tariff on steel imports and a 10 percent duty on aluminium has prompted threats of retaliation from the European Union, Canada, China and Brazil, among others. It roiled world stock markets as investors worried that a trade war could derail global economic growth.
Chinese retaliation, for example, could take the form of counter-tariffs or a central bank sell-off of US Treasuries. "I don't think a trade war characterized by central bank dumping of Treasuries is really on the radar. But we could be in for a period of retaliatory industry-specific tariffs," said Ian Lyngen, head of US rates strategy at BMO Capital Markets in New York.
US 2-year Treasury yields were last at 2.244 percent. The long end was also under pressure, with 30-year yields last at 3.16 percent.
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