THE latest escalation in the trade war between the United States and China rattled global markets again yesterday, with Treasuries and the US dollar falling in a selloff of some US assets.
US stocks edged higher, however, led by gains in technology shares as investors weighed whether recent sharp selling may have been overdone, although trading remained choppy. US President Donald Trump’s 104 per cent tariffs on China came into effect yesterday, prompting a swift retaliation from Beijing in the form of duties of 84pc on US imports.
Benchmark 10-year US Treasury note yields jumped to a seven-week high on what appeared to be large liquidations of the debt, with trading volumes overnight totalling more than four times the average. Bond yields move opposite to prices.
An increase in yields during the Asian trading day increased fears that China may be offloading a large portion of its US bond holdings.
Demand for longer-dated debt is set to face a test with a $39 billion sale of 10-year notes yesterday afternoon and a $22bn auction of 30-year bonds today.
Many investors worry that Trump’s wide-ranging tariffs will be severe enough to trigger a recession and force the Federal Reserve into cutting interest rates.
The push out of Treasuries and the dollar – effectively the backbone of the global financial system – could be symptomatic of a broader loss in investor desire to hold US assets in general and “the end of an era,” according to Deutsche Bank head of foreign exchange research George Saravelos.
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