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Treasuries Soar Amid Concerns About Escalating Trade War

Treasuries skyrocketed over the course of the trading day on Monday, extending the strong upward move seen over the past few sessions.

Bond prices moved sharply higher early in the session and saw some further upside as the day progressed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, plunged by 12 basis points to 1.735 percent.

With the steep drop on the day, the ten-year yield extended a recent slump, tumbling to its lowest closing level in almost three years.

Treasuries benefited from their appeal as a safe haven amid the escalating U.S.-China trade war, with a drop in the value of the Chinese yuan further fueling speculation Beijing is devaluing its currency to counter President Donald Trump's latest tariff threat.

Trump accused China of "currency manipulation" in a post on Twitter this morning even though his administration has repeatedly declined to officially label China a currency manipulator.

"China dropped the price of their currency to an almost a historic low. It's called 'currency manipulation.' Are you listening Federal Reserve? This is a major violation which will greatly weaken China over time!" Trump tweeted.

Trump claimed in a subsequent series of tweets that he would stop China from taking hundreds of billions of dollars from the U.S. with unfair trade practices and currency manipulation.

"China has always used currency manipulation to steal our businesses and factories, hurt our jobs, depress our workers' wages and harm our farmers' prices. Not anymore!" Trump tweeted.

A report from Bloomberg News indicating China has asked state-owned companies to suspend purchases of U.S. agricultural products also raised concerns about the impact of the escalating trade dispute.

Trump announced plans to impose a 10 percent tariff on the remaining $300 billion worth of Chinese imports last week, accusing China of failing to follow through on its promises.

In typical fashion, China responded to Trump's announcement by threatening to take necessary countermeasures to protect the country's interests.

Treasuries remained firmly positive following the release of a report from the Institute for Supply Management showing growth in U.S. service sector activity unexpectedly slowed in the month of July.

The ISM said its non-manufacturing index fell to 53.7 in July after dropping to 55.1 in June. A reading above 50 still indicates service sector growth, although economists had expected the index to inch up to 55.5.

With the unexpected decrease, the non-manufacturing index slid to its lowest level since hitting 51.8 in August of 2016.

"The non-manufacturing sector's rate of growth continued to cool off," said Anthony Nieves, Chair of the ISM Non-Manufacturing Business Survey Committee.

"Respondents indicated ongoing concerns related to tariffs and employment resources," he added. "Comments remained mixed about business conditions and the overall economy."

Amid a light day on the U.S. economic front, trading on Tuesday may be impacted by reaction to the results of the Treasury Department's auction of $38 billion worth of three-year notes.

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