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Treasuries Close Modestly Lower After Seeing Early Strength

After moving modestly higher early in the session on Friday, treasuries moved back to the downside over the course of the trading day.

Bond prices pulled back well off their best levels of the day and into negative territory. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, ticked up by 1.8 basis points to 1.734 percent after hitting a low of 1.680 percent.

Treasuries initially benefited from renewed concerns about the U.S.-China trade war after a report from Bloomberg said President Donald Trump's administration is holding off on decisions about licenses for U.S. companies to restart business with Chinese tech giant Huawei.

Trump previously said his administration would make "timely licensing decisions" but has reportedly decided to delay the decisions in response to China halting its purchases of U.S. agricultural products.

China decided to stop buying U.S. agricultural products in retaliation against Trump's announcement last week that he plans to impose a 10 percent tariff on the remaining $300 billion worth of Chinese imports.

Trump seemed to confirm the report later in the morning, telling reporters the U.S. is "not going to do business" with Chinese tech giant Huawei.

"And I really made the decision. It's much simpler not doing any business with Huawei," Trump said. "That doesn't mean we won't agree to something if and when we make a trade deal."

Trump also indicated he is "not ready" to make a trade deal with China, suggesting the U.S. could skip the next round of trade talks in September.

"We'll see whether or not we keep our meeting in September," Trump said. "If we do, that's fine. If we don't, that's fine."

Buying interest waned over the course of the session, however, inspiring some traders to cash in on the recent strength in the bond markets.

In U.S. economic news, the Labor Department released a report showing a modest increase in producer prices in the month of July.

The Labor Department said its producer price index for final demand rose by 0.2 percent in July after inching up by 0.1 percent in both May and June. The uptick in prices matched economist estimates.

Meanwhile, the report said core producer prices, which exclude food and energy prices, edged down by 0.1 percent in July after climbing by 0.3 percent in June.

The modest pullback in core producer prices came as a surprise to economists, who had expected core prices to rise by 0.2 percent.

"The decline in core producer prices in July confirms that underlying price pressures remain subdued," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

He added, "At the margin, that makes it a little more likely that Fed officials will react to any further signs of weakness in the real economy by cutting interest rates again."

The economic calendar for next week starts off relatively quiet but ramps up with the release of closely watched reports on consumer prices, retail sales, industrial production, and housing starts.

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