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10-year Treasury yield falls to lowest in a week on rising U.S.-China tensions

Treasury yields were under pressure on Friday on concerns over new instability in Hong Kong and increasing tensions between Washington and Beijing.

The yield on the benchmark 10-year Treasury note hit a low of 0.627% on Friday, its lowest level in a week. The yield on the 30-year Treasury bond was also moving lower at 1.3517%. Yields move inversely to prices.

Investors are reacting to the latest news that China is set to impose a new national security law on Hong Kong, which could spark further anti-government protests. Beijing’s control over the city will likely evoke the ire of the U.S. and other Western powers which supported pro-democracy protesters.

“The overnight bid for Treasuries was aided by China’s efforts to impose greater control on Hong Kong; a move which not only has implications for the financial hub but also points toward the reescalation of tensions between Trump and Xi,” Ian Lyngen, BMO’s head of U.S. rates, said in a note Friday.

Meanwhile, the U.S. Senate passed legislation on Wednesday that could restrict Chinese companies from listing on American exchanges or raise money from U.S. investors, unless they abide by Washington’s regulatory and audit standards.

In addition, China has said that it will not set a growth target for 2020, given the uncertainty sparked by the Covid-19 pandemic.

There are no economic data releases, Fed speeches or Treasury auctions Friday as the U.S. heads for an extended weekend to commemorate Memorial Day on Monday.

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