Bond Report: Treasury yields fall after U.S. blacklists China tech firms

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U.S. Treasury yields fell Tuesday after the Trump administration placed several Chinese technology companies on a blacklist ahead of trade negotiations at the end of the week.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -2.62%   was down 1.9 basis points to 1.534%, while the 2-year note TMUBMUSD02Y, -1.93%   rate fell 2.4 basis points to 1.440%. The 30-year bond yield TMUBMUSD30Y, -1.59%   edged lower by 1.7 basis points to 2.027%.

What’s driving Treasurys?

The U.S. Department of Commerce put eight Chinese video surveillance and artificial intelligence-related tech companies on the so-called Entity list, which restricts U.S. firms from selling technology to Chinese companies. At the same time, the White House said it would not remove U.S.-listed Chinese companies from the country’s stock exchanges, reports of which had sparked turbulence in stock and bond markets before.

See: ‘Socially responsible’ investors may have unwittingly backed police-state surveillance in China

Vice Premier Liu He is set to visit Washington on Oct. 10-11 ahead of next week when tariffs on $250 billion worth of Chinese imports will increase to 30% from 25%. Both sides have tempered hopes that negotiations will be fruitful, with news reports suggesting Chinese officials want to take certain issues like state subsidies off the table.

South China Morning Post reported that the Chinese delegation may cut its visit short, leaving Washington on Friday, instead of the originally scheduled Saturday.

In economic data, the NFIB small business optimism index fell 1.3 points to 101.8. last month Producer prices for September are due for release at 8:30 a.m. Eastern.

The Treasury Department will also sell $38 billion of 3-year notes later at 1 p.m.

Investors will see speeches from Federal Reserve officials, including Chicago Fed President Charles Evans, Fed Chairman Jerome Powell and Minneapolis Fed President Neel Kashkari throughout the day.

Read: The Trump tweets that move Fed expectations aren’t the ones bashing Powell, Goldman Sachs finds

What did market participants’ say?

“Reports suggest that Chinese officials have whittled back the menu of themes they are willing to discuss, and this could prompt investors to maintain defensive tactics before round 13 of the talks gets underway on Thursday,” wrote Kenneth Broux, a strategist for Société Générale.

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