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U.S. Government Bonds Strengthen on Trade Fears

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07/11/2018 | 10:11pm CEST

By Akane Otani

U.S. Treasury prices rose Wednesday as fresh proposals for tariffs by the U.S. stoked fears that a global trade rift could be worsening.

The yield on the benchmark 10-year U.S. Treasury note settled at 2.844%, compared with 2.873% Tuesday.

Yields, which fall as bond prices rise, slipped overnight after the White House said it was looking at assessing 10% tariffs on an additional $200 billion in Chinese goods -- spurring Beijing to say it would retaliate with more tariffs of its own. The latest steps by the U.S. and China pressured global stocks while driving up demand for U.S. Treasurys, which tend to do well when investors feel shaky about the economic outlook.

The yield on the 10-year Treasury note then pared its fall after Labor Department data showed producer prices rising more than expected, suggesting inflation could be firming.

The producer-price index, which measures prices that businesses receive for their goods and services, rose a seasonally adjusted 0.3% in June from May -- more than the 0.2% that economists surveyed by The Wall Street Journal had expected. Wednesday's PPI data, coming a day before the scheduled release of June data on consumer prices, put pressure on Treasurys, whose fixed payments carry less purchasing power when inflation picks up.

With headline and core inflation expected to accelerate, "this week's data are also likely to put a floor under ten year Treasury yields around 2.85%," wrote Larry Hatheway, chief economist and head of investment solutions at GAM Investments.

The yield on the 10-year Treasury note had risen three of the past four trading sessions, driven higher by strong U.S. economic data.

Write to Akane Otani at akane.otani@wsj.com

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