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Treasuries Show Another Significant Move To The Upside

Treasuries moved significantly higher over the course of the trading session on Monday, extending the strong upward move seen over the past several sessions.

After seeing modest strength in morning trading, bond prices saw further upside as the day progressed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 6.1 basis points to 2.081 percent.

The ten-year yield closed lower for the seventh time in eight sessions, closing below the 2.1 percent level for the first time since September of 2017.

Treasuries continued to benefit from their appeal as a safe haven amid escalating trade concerns after an official document from the Chinese government blamed the U.S. for the escalating trade dispute between the world's two largest economies.

The white paper, issued by China's State Council Information Office, argued the U.S. is "solely responsible" for the collapse of trade talks.

China accused President Donald Trump's administration of continually changing its demands, arguing the setbacks in the talks were all the result of "U.S. breach of consensus and commitments, and backtracking."

At a press conference in Beijing on Sunday, Chinese Vice Commerce Minister Wang Shouwen denied Trump's claims that China had been the side seeking to renegotiate a nearly completed agreement.

"Nothing is agreed until everything is agreed," Wang said, noting that China remains willing to resolve the trade dispute but only with an agreement that benefits both countries.

Economic data added to the concerns about the economic outlook, with a report from the Institute for Supply Management showing the pace of growth in manufacturing activity unexpectedly saw a continued slowdown in the month of May.

The ISM said its purchasing managers edged down to 52.1 in May from 52.8 in April, dropping to its lowest level since hitting 51.7 in October of 2016.

While a reading above 50 still indicates growth in the manufacturing sector, economists had expected the index to inch up to 53.0.

Treasuries saw further upside in afternoon trading after St. Louis Federal Reserve President James Bullard said an interest rate cut "may be warranted soon" due in part to the escalating global trade tensions.

Bullard said that the Fed faces an economy that is expected to grow more slowly going forward and warned the slowdown could be sharper than expected due to ongoing global trade regime uncertainty.

"In addition, both inflation and inflation expectations remain below target, and signals from the Treasury yield curve seem to suggest that the current policy rate setting is inappropriately high," Bullard said in remarks to the Union League Club of Chicago on Monday.

He concluded, "A downward policy rate adjustment may be warranted soon to help re-center inflation and inflation expectations at target and also to provide some insurance in case of a sharper-than-expected slowdown."

President Donald Trump has been pushing the Fed to lower rates and Bullard's comments suggest igniting a global trade war may lead the central bank to grant the president's wish.

Developments on the trade front are likely to remain in focus on Tuesday, overshadowing a report on factory orders in the month of April.

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