Long-dated yields slide after US hits EU, Canada, Mexico with tariffs

NEW YORK: US Treasury yields on the long end of the curve fell on Thursday after the United States slapped tariffs on steel and aluminum imports from the European Union, Canada and Mexico, rekindling fears of a trade war.

US 10-year note and 30-year bond yields, which move inversely to prices, have fallen in five of the last six sessions, reversing an uptrend that has been in place for the last couple of months.

The United States on Thursday said it was moving ahead with tariffs on aluminum and steel imports from Canada, Mexico and the European Union, ending a two-month exemption.

U.S Commerce Secretary Wilbur Ross told reporters in a telephone briefing that a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports from the EU, Canada and Mexico would go into effect at midnight.

The US move ignited a storm of protests from the three affected nations.

In response to the US tariff announcement, the European Union will impose countermeasures, said the head of the bloc's executive, Jean-Claude Juncker.

Germany's foreign minister Heiko Mass called the tariff decision unlawful, while France's junior trade minister Jean-Baptiste Lemoyne said the country won't let unjustifiable and unjustified measures go unanswered."

Canadian Prime Minister Justin Trudeau said his government will announce retaliatory measures against US tariffs.

"This will keep a cap on yields in the Treasuries market and keep the curve flattener trade in vogue," said Sean Simko, head of global fixed income management at SEI in Oaks, Pennsylvania.

Curve flatteners take advantage of the rate environment in which long-term rates are decreasing at a rate faster than short-term rates.

"The news on trade war has been circulated for the last six months. We have positioned accordingly since the beginning of the year. We are looking as safe-haven assets as a back-up," Simko added.

The tariff measures overshadowed news that Italy's anti-establishment political leaders have reached a deal on Thursday to resurrect their proposed coalition government, averting the prospect of a new snap election, which had shaken global markets on Tuesday.

These global headlines also outweighed US economic reports such as US consumer spending and initial jobless claims that were solid overall, affirming expectations of at least two more rate hikes this year.

In afternoon trading, US 10-year yields fell to 2.831 percent, from Wednesday's 2.844 percent.

US 30-year yields dropped to 2.992 percent, from 3.017 percent late on Wednesday.

On the short end of the curve, however, US 2-year yields were up at 2.419 percent, from Wednesday's 2.411 percent.