2018.05.3119:22:00UTC+00Treasury Prices Rally as U.S. Moves to Hit Allies with Steel, Aluminum Tariffs

U.S. government bond prices climbed marginally on Thursday, resulting in yields edging down, as the U.S. announced tariffs on steel and aluminum imports from its allies.

Investors pulled away from risky assets such as stocks and flocked into Treasurys after the U.S. announced it would impose tariffs on steel and aluminum from Canada, Mexico and the European Union. The tariffs had been previously announced, but the three trade partners have received exemptions. Retaliatory actions are expected, stoking fears of a trade war once more.

The recent developments in the feared trade war eclipsed the more upbeat sentiment surrounding Italy's political environment, which has driven up yields in Europe.

The yield on Italy's 10-year bond edged down 31.7 basis points to 2.724%, according to Tradeweb.

For the month, Treasury yields declined sharply after lower rate hike expectations and a flight to safety rally in U.S. government bonds.

The yield on the benchmark 10-year U.S. Treasury note edfed down 1.8 basis points to 2.824 percent, adding to a month long fall of 11.2 basis points. During the overnight trading session, the 10-year Treasury yield advanced to an intraday peak of 2.886 percent, but found difficulty retaining its upward rally as trade headlines increased appetite for U.S. bonds.

The two-year Treasury note yield was flat at 2.411 percent, but was nonetheless down 7.4 basis points for the month, its biggest of such drop since June 2016, when Britain voted to withdraw from the European Union.

The yield on the 30-year Treasury bond edged down 2.9 basis points to 2.987 percent, adding to a month long decline of 11 basis points.