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Treasuries Extend Recent Upward Move Amid Trade Worries

Extending the notable upward move seen over two previous sessions, treasuries showed a strong move to the upside during trading on Tuesday.

Bond prices moved higher early in the session and climbed more firmly into positive territory as the day progressed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid by 5.2 basis points to 2.448 percent.

Treasuries benefited from their appeal as a safe haven after U.S. Trade Representative Robert Lighthizer confirmed the U.S. plans to raise tariffs on $200 billion worth of Chinese goods to 25 percent on Friday.

President Donald Trump threatened to implement the tariff increase in a post on Twitter on Sunday, claiming trade talks between the U.S. and China are moving "too slowly."

The confirmation of the Friday deadline may have shattered the belief that the threat from Trump was just a negotiating tactic.

Lighthizer attributed the potential tariff increase to an "erosion in commitments by China" over the last week, with the trade representative calling substantive changes to the text of a deal "unacceptable."

Treasury Secretary Steven Mnuchin noted the U.S. would reconsider raising the tariffs if negotiations get back on track during the next round of talks later this week.

However, traders have largely shrugged off news that Chinese Vice Premier Liu He is expected to join this week's talks

Lighthizer and Mnuchin did not comment on Trump's threat to impose tariffs on the remaining $325 billion worth of Chinese imports.

Treasuries remained firmly positive following the release of the results of the Treasury Department's auction of $38 billion worth of three-year notes, which attracted modestly below average demand.

The three-year note auction drew a high yield of 2.248 percent and a bid-to-cover ratio of 2.48, while the ten previous three-year note auctions had an average bid-to-cover ratio of 2.56.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Trading on Wednesday may be impacted by reaction to any news on U.S.-China trade talks amid another quiet day on the U.S. economic front.

Bond traders are also likely to keep an eye on the results of the Treasury Department's auction of $27 billion worth of ten-year notes.

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