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The yield on the benchmark 10-year Treasury note fell to a 19-month low Tuesday as Wall Street grew more certain that the U.S.-China trade war will last longer and afflict GDP growth more than first thought.
At around 8:31 a.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, was lower at around 2.29%, off a 19-month low of 2.273% notched earlier in the session. The yield on the 30-year Treasury bond yield traded at 2.723%, up from a December 2017 low of 2.703%; the 2-year Treasury note yielded 2.149%.
The 3-month Treasury bill yielded 2.354%, keeping a portion of the yield curve inverted. The German 10-year bund yield hit a low of -0.163%, its lowest level since Sept. 30, 2016.
The U.S. bond market was closed Monday in observance of Memorial Day.
President Donald Trump said from Japan on Monday the U.S. was "not ready" to make a deal with China, adding to recent investor angst that the tit-for-tat trade war between the world's two largest economies is far from over.
Washington and Beijing have imposed tariffs on billions of dollars' worth of each other's goods since the start of 2018, battering financial markets and souring business and consumer sentiment. Most recently, the U.S. hiked the tax rate on $200 billion of Chinese imports to 25% from 10% and threatened to imposed stricter levies on another $300 billion worth of Chinese products.
That's kept a lid on Treasury rates in recent months as retailers, chipmakers and other trade-exposed sectors of the American economy scrambled to find new supply chains and relocate operations. But lowering interest rates — often applauded on Wall Street for their ability to encourage borrowing — may not be a positive sign in the current environment, according to Credit Suisse chief market strategist Jonathan Golub.
"Since troughing in late December, the S&P 500 has returned 20.2%, while 10-year Treasury yields have fallen from 2.74% to 2.32%. Simple math would suggest that falling rates contributed to this improvement in stock prices. However, a more thorough analysis challenges this consensus view," Golub said in a note Tuesday.
"Higher rates from here should support further upside for equities, while a potential Fed rate cut would be less positive for stock prices than many investors believe," he added.
A growing number of investors now believe that the U.S. central bank may have to cut its overnight lending rate later in 2019 as the waning effects of Trump's tax cuts and mounting trade disputes weigh on economic forecasts.