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Government Bonds Strengthen on Trade Uncertainties

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03/07/2018 | 05:55pm CEST

By Gunjan Banerji

Government bond prices crept higher on Wednesday as investors faced uncertainty about economic policy.

The yield on the benchmark 10-year Treasury note fell to 2.872%, according to Tradeweb, from 2.877% on Tuesday. Yields fall as bond prices rise.

Some analysts said concerns over a global trade war triggered bond market swings early in the session after Gary Cohn said he would resign as President Donald Trump's top economic adviser, a move that roiled stock markets early Wednesday. Mr. Cohn was key to the White House tax overhaul but clashed with the president over steel and aluminum tariffs that faced backlash from countries around the world.

The yield on the 10-year Treasury slipped to as low as 2.846% in early trading, according to Tradeweb, as investors scooped up government bonds and sold risky assets like stocks.

The weakness in stock prices drove a "commensurate rally in Treasurys," said James Athey, senior investment manager at Aberdeen Standard Investments. "I don't expect that to last or continue."

Some analysts said data showing a widening trade deficit could also feed a political back-and-forth over tariffs. The U.S. trade deficit widened in January for the fifth straight month, hitting its largest level in over nine years, the Commerce Department said Wednesday. Imports remained flat from December, but exports fell in January.

Yields pared their early decline after data showed hiring at private U.S. employers ticked up more than expected in February, according to payroll processor Automatic Data Processing Inc. and forecasting firm Moody's Analytics. Job growth stemmed from sectors across the economy. The ADP report comes before Friday's monthly Labor Department data, which investors will parse closely for information on the health of the economy.

Investors are watching economic data for signs of a pickup in inflation and to assess the path of interest rates. Federal Reserve governor Lael Brainard said Tuesday at a speech in New York that she has become more confident that inflation will hit the central bank's target. Inflation is a primary threat to government bonds because it erodes the purchasing power of their fixed payments.

Write to Gunjan Banerji at [email protected]

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