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U.S. Government Bonds Rise on Tariff Jitters

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03/08/2018 | 07:06pm CEST

By Daniel Kruger

U.S. government bonds rose Thursday as investors focused on the risk to economic growth presented by President Donald Trump's plan to impose tariffs on steel and aluminum imports.

The yield on the benchmark 10-year note fell to 2.855%, according to Tradeweb, from 2.883% Wednesday. Yields fall as bond prices rise.

Yields fell early in the session, with some investors saying that the levies would help curb global growth and potentially hinder the Federal Reserve in speeding up its pace of interest-rate increases beyond the three moves penciled in by the policy makers at their meeting in December.

Mr. Trump said Thursday he was going ahead with a meeting planned with metal industry executives and workers in the afternoon, though it remained uncertain whether the paperwork necessary to enact the plan would be ready to sign at that time.

"Tariffs are the headline event right now," said Aaron Kohli, an interest-rate strategist at BMO Capital Markets. Though they are expected to boost inflation pressures by raising prices on goods throughout the economy, their potential drag on economic growth has boosted demand for longer-term securities, Mr. Kohli said.

The potential for the tariffs to prompt retaliation from U.S. trading partners could possibly hurt the stock market, which would give investors an additional reason to buy government bonds, said Andrew Brenner, head of global fixed income at NatAlliance Securities.

Investors are also awaiting Friday's Labor Department jobs report, which may signal the degree to which tight labor markets are starting to pressure inflation to accelerate. If February data show strong wage growth, mirroring the January data, that could be enough for investors to extrapolate that faster inflation is coming, and that the Fed will raise rates more than the three times it had penciled in for 2018 when it met in December, analysts said.

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

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