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2-, 10-year Treasury yields end lower for third time in four sessions amid China growth concerns

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Yields on U.S. government debt finished mostly lower on Tuesday as a risk-off tone enveloped markets after investors returned from the Presidents Day weekend.

What happened

The yield on the 2-year Treasury
BX:TMUBMUSD02Y
fell 4.4 basis points to 4.610%, from 4.654% on Friday. Yields move in the opposite direction to prices.

The yield on the 10-year Treasury
BX:TMUBMUSD10Y
slipped 1.8 basis points to 4.276%, from 4.294% on Friday.

Two- and 10-year rates are each down for three of the past four trading sessions, but nonetheless finished at their third-highest levels of the year.

The yield on the 30-year Treasury
BX:TMUBMUSD30Y
was unchanged at 4.448% versus its 3 p.m. Eastern time level on Friday.

The Treasury market was closed on Monday for the Presidents Day holiday.

What drove markets

Bond yields edged lower as concerns about the health of China’s economy came into focus, after the country trimmed a five-year mortgage rate by a record amount in an attempt to support its ailing property sector.

Worries about declining industrial activity in China also highlighted that country’s deflationary trend, which provided additional support to global bond prices.

U.S. traders were looking ahead to Wednesday’s release of minutes from the Federal Reserve’s Jan. 30-31 policy meeting, which is expected to include a discussion about the need for more evidence that inflation is cooling before policy makers can consider trimming borrowing costs.

Read: Traders are flirting with the idea of a Fed rate hike as January meeting minutes loom

Also: Powell needs to avoid a ‘Honey, I forgot to shrink the policy rate’ moment

What analysts are saying

“It’s not just the economy’s resilience worrying traders. The January [consumer-price index] and [producer-price index] have people worried about inflation,” said Chris Low, chief economist at FHN Financial in New York.

Meanwhile, Bill Dudley, former New York Fed president and a columnist at Bloomberg, indicated that “the natural rate of interest might be elevated after years of bloated federal deficits, in which case Fed policy might not be all that tight,” according to a note by Low on Tuesday.

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