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Bond Report: 10-year Treasury yields tumble most since August as Trump casts doubt on quick China trade deal

Yields on 30-year U.S. Treasury bonds are on pace for their biggest one-day plunge in over three years, as investors steer away from stocks and other risky assets after President Donald Trump says a U.S.-China trade deal could benefit from waiting until after the 2020 presidential election. Read More...

U.S. 10-year Treasury bond yields tumbled on Tuesday to their lowest point since Aug. 5, after President Donald Trump said a U.S.-China trade deal might not come until after the 2020 presidential election, sparking a rush into haven assets.

What are yields doing?

The yield on the 10-year Treasury note TMUBMUSD10Y, -6.09%  fell 12.5 basis points to 1.710% in trading, its biggest one-day drop since Aug. 5, while the 2-year Treasury yield TMUBMUSD02Y, -3.98%  fell 7 basis points to 1.544%, its largest single-day decline since Oct. 31, according to Dow Jones Market Data. The 30-year Treasury bond yield TMUBMUSD30Y, -4.53% sank 12 basis points to 2.161%, its biggest one-day plunge since June 27, 2016. Yields and debt prices move in opposite directions.

What’s driving the market?

Yields were pulled sharply lower after Trump, speaking in London, said he had no deadline for completing long-running U.S.-China trade talks. “In some ways, I think it’s better to wait until after the election if you want to know the truth. But I’m not going to say that, I just think that,” he said.

Commerce Secretary Wilbur Ross followed up Trump’s comments on Tuesday in a CNBC interview, saying that the president was under no “time pressure” to strike a deal with China and that another round of tariffs would be imposed on Chinese goods on Dec. 15 unless there was “some real reason to postpone them.”

Analysts said it was unclear whether Trump’s remarks signaled an unraveling of talks or were merely a negotiating tactic. Either way, the response among investors was a swift push into haven assets.

“We are seeing a spike in bond prices,” said Charlie Ripley, senior investment strategist at Allianz Investment Management in Minneapolis, in an interview with MarketWatch. “The narrative has kind of flipped on trade — at least over the short-term, and investors are seeing a different picture portrayed today.”

Trump’s remarks saw global equity markets fall, with the Dow Jones Industrial Average DJIA, -1.28%  skidding more than 350 points Tuesday and all three major U.S. stock indexes on course for their biggest one-day drop since October. Stocks have climbed in recent months amid optimism over prospects for a so-called phase one trade deal, though early expectations for a quick resolution have been repeatedly disappointed and Trump’s willingness to open new fronts in the trade war — with Argentina, Brazil and France — has unnerved markets.

On Monday Trump tweeted that he was bringing back tariffs on Brazilian and Argentina steel and the administration also proposed tariffs of up to 100% on $2.4 billion in French imports.

Read: Trump’s comments on waiting until after election for China trade deal could reflect bluster — or difficult state of talks

Gold prices spiked Tuesday too, with gold for February delivery GCG20, +1.05%  on Comex settling 1% higher at $1,484.40 an ounce, handing the precious metal its biggest one-day gain in nearly a month.

The take-away from the market action is that “large volumes are trying to find their way to safety before year-end,” said Jim Vogel, executive vice president at FHN Financial, in a note.

“The players with the most capital to invest will execute their last 2019 decisions the week of Dec. 16,” he added, which means “sudden changes and large market volumes are the rule for the next three weeks. Yet, it’s possible current Treasury ranges can return to dominate rates when the week of Jan. 13 rolls around.”

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