Bonds gain as Trump talks down the dollar

US Treasury prices gained on Tuesday after President Donald Trump expressed concern about the value of the dollar, sending it lower and raising demand for safe haven US bonds. In comments targeted to the pharmaceutical industry, Trump said currency devaluation by other countries had increased drugmakers' outsourcing their production and called on the companies to make more of their products in the United States.
The remarks came after Trump's new National Trade Council head Peter Navarro suggested that Germany was benefiting from a "grossly undervalued" exchange rate.
"It's a significant change in policy in the dollar...it's destabilising," said Lou Brien, a market strategist at DRW Trading in Chicago. "The fact that they are talking around (the strong dollar policy) is going to upset the markets."
Data on Tuesday also showed consumer confidence fell from a 15-year high in January, while a Chicago survey found that business production in the Midwest grew at a slower pace in January.
"Part of the story was the data," said Brien.
Benchmark 10-year notes gained 11/32 in price to yield 2.44 percent, down from 2.48 percent late on Monday and the lowest level since January 24.
Investors are preparing for a barrage of data this week, culminating in Friday's jobs report for January, which they will evaluate for further signs of the strength of the US economy.
Employers are expected to have added 175,000 jobs in the month, according to the median of 102 economists polled by Reuters. The US Federal Reserve is expected to keep interest rates unchanged when it concludes its two-day meeting on Wednesday, in its first policy decision since Trump took office, as the central bank awaits greater clarity on his economic policies.
"The Fed tomorrow will be interesting in gauging the near-term policy bias, but no one's expecting anything in terms of an actual increase or a definitive shift in their rhetoric," said Ian Lyngen, head of US rates strategy at BMO Capital Markets in New York. Treasuries are gained some support on Tuesday from demand for them for month-end rebalancing.