3-6-18 9:59 AM EST | Email Article

By Mark DeCambre, MarketWatch , Sunny Oh

Treasury prices slipped, pushing yields modestly higher on Tuesday as congressional Republicans exerted pressure on President Donald Trump to water down his plan to institute global tariffs on aluminum and steel imports.

What are Treasurys doing?

The 10-year Treasury note yield was up 1.5 basis points to 2.894%. The 2-year note yield rose 1.2 basis points to 2.254%. The 30-year bond yield was slightly higher by 0.9 basis point to 3.160%.

Debt prices move inversely to yields.

What's driving Treasurys?

Treasurys saw modest selling after House Majority Leader Paul Ryan, R-Wis., and other congressional Republicans appeared to ratchet up pressure on Trump to back down from his protectionist stance. Ryan's spokeswoman said Trump's tariffs on steel and aluminum imports could trigger retaliation from its trading partners like the European Union.

U.S. government paper has sometimes received a slight lift from haven-related buying as investors took shelter against geopolitical turmoil. At the same time, economists warn tariffs could weaken the dollar and increase costs for broader U.S. industry, contributing to a buildup of inflationary pressures when market participants are already nervous about a flare-up in prices. Inflation is bearish on bonds as they erode the value of their fixed-interest payments.

See: Trump's tariff plan creates rift among Republicans (http://www.marketwatch.com/story/trumps-tariff-plan-creates-rift-among-republicans-2018-03-06)

But traders said the market could stabilize later in the day as CVS(CVS) sells $44 billion dollar of investment-grade debt onto the market as soon as today. Companies intending to issue debt will often hedge a sudden rise in interest rates by selling Treasurys to lock in a lower borrowing cost. That's why as a large deal comes onto the market, investors can see a bearish tone overtake the bond market.

What are market participants saying?

"The White House has brought into question the stability of key trade relationships with all of the U.S.'s major partners, and while the final outcome of these negotiations is a long ways off, the immediate result is yet another period of uncertainty. We're not the first to make the observation, but any positive momentum for manufacturing and the U.S. corporate sector is currently being undermined by the unknowns associated with trade tariffs," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

What else is on investors' radar?

Factory orders for January are set to come out at 10 a.m. Eastern. Economists polled by MarketWatch are forecasting a 1.4% drop, from a 1.7% gain in December.

In an interview on CNBC, Dallas Federal Reserve Bank President Robert Kaplan said the central bank should get started on raising interest rates and can decide as the year unfolds how many times to move. Kaplan isn't a voter this year on the Fed's rate-setting committee.

Federal Reserve Gov. Lael Brainard will speak about the monetary policy outlook in the New York City at 7:30 p.m. Eastern. Kaplan will participate in a moderated Q&A at an energy conference at 8:30 p.m.

What are other assets doing?

Fading fears of a trade war helped to buoy European markets, lifting stocks and pushing bonds lower. The German 10-year bond yield picked up 6 basis points to 0.689%, while the French 10-year yield was up by 4.9 basis points to 0.942%.

Also check out: Italian bond market is in a world of its own after election turmoil (http://www.marketwatch.com/story/italian-bond-market-is-in-a-world-of-its-own-after-election-turmoil-2018-03-05)


(END) Dow Jones Newswires

March 06, 2018 09:59 ET (14:59 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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