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Delay in U.S.-China Trade Deal Hits 10-Year Treasury Yield

President Trump hinted at a delay in the U.S.-China trade agreement until after the 2020 elections on Dec 3, sending jitters across markets. Consequently, the yield on benchmark 10-year Treasury note has plummeted sharply since August.

Specifically, the rate on the 10-year Treasury bond shrunk 14 basis points (bps) to around 1.70%, reflecting the biggest one-day decline since Aug 1. Further, the yield on the 30-year Treasury bond contracted 12 bps to about 2.16%.

“In some ways, I like the idea of waiting until after the election for the China deal, but they want to make a deal now and we will see whether or not the deal is going to be right,” Trump told reporters earlier on Tuesday. When asked if he had a deal deadline, he added, “I have no deadline, no ... In some ways, I think it is better to wait until after the election if you want to know the truth.”

Notably, after tariff impositions on billions of dollars’ worth of goods by the world’s two largest economies, an agreement was anticipated after both nations agreed to work on the phase one of the trade deal in October. A deal was likely to happen prior to the new tariffs’ impositions on Chinese goods on Dec 15. However, Trump’s latest statement has dampened investors’ hopes.

Sell-off was recorded following Trump’s statement, with the Dow Jones Industrial Average (DJIA) falling 1.01% on Tuesday, and all three major U.S. stock indexes displaying the third straight session of losses. Notably, among others, Bank of America BAC, Goldman Sachs GS, United States Steel Corporation X, Nucor Corporation NUE, The Allstate Corporation ALL and Intel Corporation INTC dropped more than 1%.

Therefore, investors pushed toward safe-haven assets, which sunk the benchmark 10-year Treasury yield, pushing bond prices higher. It should be noted that bond prices and yields move in opposite directions.

Though expectations of an agreement on the so-called phase one of the trade deal instilled optimism, helping stocks move higher in recent months, delay in the same and hints of Trump’s move to impose steel and aluminum tariffs on imports from Brazil and Argentina have caused investors to panic.

At present, the entire economic picture looks grim, and the financial performance of different sectors will likely be affected by the trade war to some extent.

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