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Treasuries Move To The Downside In Reaction To Trump-Xi Meeting

Treasuries recovered from an initial move to the downside on Monday only to pull back once again as the trading day progressed.

Bond prices climbed off their worst levels late in the day but still closed firmly in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 3.4 basis points to 2.034 percent.

The weakness among treasuries came after President Donald Trump and Chinese President Xi Jinping agreed to restart stalled trade negotiations.

Trump met with Xi on the sidelines of the G20 summit in Osaka, Japan, over the weekend, telling reporters the meeting was "excellent, as good as it was going to be" and "we're right back on track."

In his closing G20 press conference, Trump revealed that he will not follow through on threats to raise tariffs on all remaining Chinese imports "at least for the time being."

The president also suggested that the U.S. would allow American companies to sell products to Chinese tech giant Huawei that do not pose national security concerns.

In return for holding off on tariffs and loosening restrictions on sales to Huawei, Trump said China has agreed to purchase large quantities of U.S. agricultural products.

Trump noted that existing tariffs on Chinese imports will remain in place, suggesting the U.S.-China trade dispute could still act as headwind to the global economy unless the conflict is eventually resolved.

"The quality of the transaction is far more important to me than speed," Trump said in a post on Twitter. "I am in no hurry, but things look very good!"

Treasuries staged an early recovery attempt after a report from the Institute for Supply Management showing a continued slowdown in the pace of growth in U.S. manufacturing activity in the month of June.

The ISM said its purchasing managers index edged down to 51.7 in June after slipping to 52.1 in May, although a reading above 50 still indicates growth in the manufacturing sector. Economists had expected the index to dip to 51.0.

With the continued decrease, the index dropped to its lowest level since hitting a matching reading in October of 2016.

"Comments from the panel reflect continued expanding business strength, but at soft levels; June was the third straight month with slowing PMI expansion," said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.

"Respondents expressed concern about U.S.-China trade turbulence, potential Mexico trade actions and the global economy," he added. "Overall, sentiment this month is evenly mixed."

Selling pressure re-emerged shortly afterward, however, as traders express optimism the U.S. and China will eventually reach a long-term trade deal.

Trading activity may be somewhat subdued on Tuesday, as a lack of major U.S. economic may keep some traders on the sidelines ahead of the holiday on Thursday.

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