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U.S. Government Bond Prices Rise as Trade Concerns Grow

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02/08/2019 | 04:35pm EDT

By Daniel Kruger

U.S. government bond prices rose Friday amid increasing investor worries about U.S.-China trade tensions.

The yield on the benchmark 10-year Treasury note declined to a recent 2.632%, according to Tradeweb, from 2.652% Thursday.

Yields, which fall as bond prices rise, slipped as signs mounted that U.S. and Chinese negotiators have made little progress. Reports that President Trump is unlikely to meet with Chinese President Xi Jinping have diminished investor expectations that the two sides could reach an agreement before the March 1 deadline, at which point U.S. tariffs are set to increase.

Those concerns, along with increasing expectations for slowing global growth, have led investors to seek a haven in U.S. government debt and its fixed returns. In Europe, the economy faces a daunting combination of weaker demand for its exports from China and elsewhere along with mounting political problems such as unresolved Brexit negotiations.

Demand for government debt was persistently strong this week, with yields falling as the Treasury auctioned off a total of $84 billion of three-, 10- and 30-year debt.

"There's a risk-off tone in the marketplace," said Jose Sevilla, who manages bond portfolios at SVB Asset Management. "There's still a lot of uncertainty about trade talks with China. Couple that with global growth concerns" and the appeal of U.S. government debt becomes more apparent, he said.

Those concerns are also contributing to expectations in financial markets that the Federal Reserve will opt not to raise interest rates this year.

Fed funds futures, which investors use to bet on the path of Fed policy, showed Friday afternoon that the probability that policy makers will hold interest-rates steady this year is 81% versus a 19% chance that they lower rates, according to CME Group data.

Higher interest rates diminish the allure of fixed-rate investments like bonds.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

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