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U.S. Government Bonds Rise on Tariff Jitters

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03/08/2018 | 11:15pm CEST

By Daniel Kruger

U.S. government bond prices 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 Treasury note fell for the second time in three sessions, to 2.866% from 2.883% Wednesday. The yield remains less than 0.1 percentage point below the high for the year of 2.943%. Yields fall as bond prices rise.

Yields fell early in the session, with some investors saying that the tariffs would help curb global growth and potentially hinder the Federal Reserve from speeding up its pace of interest-rate increases beyond the three moves penciled in by policy makers at their meeting in December. Slower growth can make risky assets less attractive and prompt buying in government debt.

Mr. Trump said Thursday he would sign proclamations imposing steep tariffs on steel and aluminum but granting the administration flexibility on the levels and the ability to spare critical U.S. allies. The initial plan called for tariffs of 25% on steel and 10% on aluminum imports.

"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 retaliation from U.S. trading partners could potentially 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 report, which may signal the degree to which tight labor markets are starting to put pressure on inflation to accelerate. If February data echoes January in showing strong wage growth, investors could extrapolate that faster inflation is coming and that the Fed will raise rates more than expected, analysts said.

Write to Daniel Kruger at [email protected]

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