3-6-18 12:54 PM EST | Email Article

By Mark DeCambre, MarketWatch , Sunny Oh

Treasury yields fell on Tuesday, erasing its early climb, after traders positioned amid a large corporate bond offering by CVS Health and as uncertainty over global tariffs on aluminum andsteel imports persisted.

What are Treasurys doing?

The 10-year Treasury note yield was down 1.3 basis point to 2.866%. The 2-year note yieldwas mostly unchanged at 2.238%. The 30-year bond rate was lower by 1.8 basis point to 3.133%.

Debt prices move inversely to yields.

What's driving Treasurys?

Traders said the bond market stabilized as CVS Health(CVS) shopped some $40 billion dollar of debt Tuesday afternoon. Companies intending to issue bonds will rely on dealers to off-load the massive inventory and such dealers will often hedge a sudden rise in interest rates by selling Treasurys.

But on the day the corporate bonds hit the market, traders might be buying Treasurys ahead of an expected pickup in demand once dealers need to buy back bonds after unwinding their hedges.

U.S. government bonds saw brief selling earlier after House Majority Leader Paul Ryan (http://www.marketwatch.com/story/ryan-calls-on-trump-to-make-steel-tariffs-surgical-2018-03-06) and other congressional Republicans appeared to ratchet up pressure on Trump to moderate his protectionist stance. While, Treasury Secretary Steven Mnuchin appeared to say the tariffs wouldn't apply to Mexico and Canada if the North American Free Trade Agreement is renegotiated. The lack of certainty on the trade front has sapped appetite for stocks, while stimulating demand for bonds.

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 particularly bearish for long-dated 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)

Read: Why a full-blown Trump trade war probably won't happen (http://www.marketwatch.com/story/why-a-full-blown-trump-trade-war-probably-wont-happen-2018-03-06)

What are market participants saying?

"Part of it is the persistent Trump headlines on trade, they seem to be hurting risk sentiment. you could be seeing bonds reacting stocks, which started higher earlier in the day. Part of it could also be anticipation once this large deal prices in the market, you'll have some of the hedges unwound, and you'll see rates rally," said Gennadiy Goldberg, rates strategist for TD Securities.

"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.

Rick Rieder, chief investment officer for global fixed income at BlackRock suggested in a tweet bonds were an imperfect shield against a potential a trade war.


What else is on investors' radar?

Factory orders for January fell 1.4%, in line with expectations from Economists polled by MarketWatch.

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.


(END) Dow Jones Newswires

March 06, 2018 12:54 ET (17:54 GMT)

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