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U.S. Government Bonds Fall as Stocks Rebound

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05/14/2019 | 04:30pm EDT

By Daniel Kruger

U.S. government-bond prices fell Tuesday as stock prices rebounded and investors embraced the potential for progress in trade talks between the U.S. and China.

The yield on the benchmark 10-year Treasury rose for the second time in the past three trading sessions, settling at 2.421% from 2.405% Monday.

Yields, which climb when bond prices fall, rose after President Trump said on Twitter Tuesday that "when the time is right we will make a deal with China." Mr. Trump also cited potential interest-rate cuts by the People's Bank of China and urged the Federal Reserve to do likewise.

Mr. Trump said late Monday that he plans to meet with Chinese President Xi Jinping next month when he travels to Japan for a summit, in comments hours after Beijing increased tariffs on $60 billion of U.S. goods in the latest escalation of the trade fight. The retaliation from China came in response to the U.S.'s move Friday to raise tariffs on $200 billion of Chinese products.

Mr. Trump's comments about the Fed are part of an continuing effort by Mr. Trump to pressure policy makers into speeding economic growth as the 2020 elections approach, said Wen Lu, an interest-rate strategist at TD Securities. Should trade tensions slow economic growth, this "could be a long-term story for him," he said.

At the same time, slowing inflation could be making a Fed rate cut more likely.

Yields fell briefly after the Labor Department said Tuesday that import prices rose 0.2% in April from the previous month, signaling that inflation isn't gaining traction within the economy. The increase was less than the 0.6% gain in March and the 0.6% increase predicted by economists in a Wall Street Journal survey.

The import-price index was the third set of April inflation data released in recent days that fell short of economists' expectations, reinforcing the Fed's recent concerns about softening price pressures.

The Labor Department said last week its closely watched consumer-price index rose 0.3% from March, while the producer-price index climbed 0.2%. Both increases were 0.1 percentage point below economists' expectations.

Decelerating price pressures could bolster the case for the Fed to cut interest rates later this year, given central bank Chairman Jerome Powell's focus on the outlook for inflation as a chief determinant of monetary policy, some analysts said.

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

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