August 23, 2019 / 12:35 PM / 7 months ago

TREASURIES-Yields fall as China introduces tariffs on US goods

    * China unveils retaliatory tariffs
    * Speech by Fed's Powell in focus 
    * Traders see 94% chance of rate cut in September

    By Karen Brettell
    NEW YORK, Aug 23 (Reuters) - U.S. Treasury yields fell on
Friday after China unveiled retaliatory tariffs against about
$75 billion worth of U.S. goods, marking the latest escalation
in a protracted trade dispute between the world's two largest
    China's commerce ministry said in a statement it would
impose additional tariffs of 5% or 10% on a total of 5,078
products originating from the United States that include
agricultural products, crude oil, small aircraft and cars.
Tariffs on some products would take effect on Sept. 1 and others
on Dec. 15.             
    The escalating U.S.–China trade war is weighing on business
sentiment even as investors are already worried about slowing
international growth.
    The tariff announcement comes just before U.S. Federal
Reserve Chairman Jerome Powell is due to give a speech in
Jackson Hole, Wyoming, which will be evaluated for signs of
whether further rate cuts are likely.
    The U.S. central bank last month cut interest rate by 25
basis points, but indicated further rate decreases may not be
    Minutes of the July 30-31 meeting released on Wednesday show
that policymakers were divided on cutting rates in July, and
were united in wanting to avoid the appearance of being on the
path to further rate cuts.             
    Kansas City Fed President Esther George, who dissented
against the U.S. central bank's decision to cut rates last
month, and Philadelphia Fed President Patrick Harker, who said
he "reluctantly" supported the rate cut, both said on Thursday
the U.S. economy does not need more stimulus at this point.
    On Friday, St. Louis Federal Reserve President James Bullard
gave an opposing view, saying the Fed continued to ease monetary
policy because of the Treasury yield curve.             
    The bond market has priced in a far more bearish picture on
the economy since the Fed’s July meeting.
    The two-year, 10-year yield curve inverted last week for the
first time since 2007, a signal that a recession is likely in
one to two years. The curve has traded in and out of inversion
for the past three days.
    Interest rate futures traders are pricing in a 100% chance
of a rate cut at the Fed’s September meeting, according to the
CME Group’s FedWatch tool.
    Benchmark 10-year notes            were last up 2/32 in
price to yield 1.603%, down from 1.610% late on Thursday.
    The two-year, 10-year yield curve                is one
basis point. 

 (Editing by Bernadette Baum)
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