Bonds steady as trade war, North Korea fears ease

NEW YORK: US Treasury yields were little changed on Tuesday in choppy trading as optimism grew that US President Donald Trump may back down from proposed steel and aluminum tariffs that have prompted concerns about a global trade war.

Top US Republican politicians, including House of Representatives Speaker Paul Ryan, on Monday urged Trump not to go ahead with tariffs on foreign imports of steel and aluminum.

Even though the president said he would not back down, he suggested Canada and Mexico could be exempted if a new North American Free Trade Agreement (NAFTA) was reached, which many market participants see as the main motivation behind the plan.

"It does seem as though Trump has laid out the fact that he's using these tariffs as a negotiating tactic," said Gennadiy Goldberg, an interest rate strategist at TD Securities in New York.

Benchmark 10-year note yields were last at 2.879 percent, unchanged on the day.

The potential for easing tensions between the United States and North Korea was seen helping reduce demand for safe-haven US bonds.

Trump said on Tuesday he saw "possible progress" in denuclearization efforts with North Korea after South Korea said Pyongyang would be willing to meet with the United States and suspend nuclear tests while talks proceed.

CVS Health Corp's $40 billion, nine-part corporate bond sale weighed on bonds earlier on Tuesday.

"There was some concerns in the early morning about this big deal with CVS going through and potential hedging needs," said John Herrmann, a director in rates strategies at MUFG Securities Americas in New York.

Speculation also swirled that Federal Reserve Governor Lael Brainard may take a more hawkish tone in a speech scheduled for Tuesday evening.

"We're hearing a bunch of whispers about how potentially hawkish she may be tonight and that maybe she's ready to shift out of the uber dove camp into something more centrist," Herrmann said.

Rising inflation and continued job market gains have increased speculation that the US central bank may hike rates four times this year, more than the previously expected three increases.

The major economic focus this week will be Friday's employment report for February, which will be evaluated for further signs of wage strength as an indicator of inflation.