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U.S. Government Bonds Fall as Trade Talks Resume

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02/11/2019 | 01:21pm EDT

By Daniel Kruger

U.S. government bond prices fell Monday as China and the U.S. start a new round of trade negotiations this week.

The yield on the benchmark 10-year Treasury note rose to 2.661%, according to Tradeweb, from 2.632% Friday.

Yields, which rise when bond prices fall, climbed as investors focused on a resumption in the talks. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin are scheduled to meet with China's vice premier later in the week.

Trade remains a focus for investors with many saying the outcome of the talks could play an important role in determining the direction of markets. Should the U.S. raise tariffs on Chinese imports at the beginning of March as planned, it would add to the difficulties facing China as its economy continues to decelerate. That could weigh on commodities prices, given China's role in manufacturing, while rippling into Europe, which sends a significant amount of exports to China, analysts said.

"It's going to fuel the fire of the risk-on mentality," said Sean Simko, who oversees bond portfolios at SEI Investments. "The market is hanging on to any hope out there."

Bonds have retained their appeal with investors in recent weeks as concerns persist about trade talks and potential a resumption of the record 35-day government shutdown, which ended in late January.

The Federal Reserve Bank of New York's Survey of Consumer Expectations for January showed the bank found respondents expect rising unemployment down the road. For the fourth straight month, the survey reported expectations of higher joblessness a year from now rose, with 40.6% of respondents holding that view, from the prior month's 38.8%.

Some investors may be willing to look past data that reflects activity in January, during the period where about 800,000 federal government workers missed paychecks because of the partial government shutdown, Mr. Simko said.

Investors have found the safety of bonds attractive because they have been supported by expectations that the Federal Reserve could be done raising interest rates for the near feature after lifting them nine times since December 2015.

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

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