By Mark DeCambre, MarketWatch , Sunny Oh

Treasury yields pulled back sharply Thursday morning, with the 10-year note rate retreating, after hitting its highest level in about three weeks.

That move came after the Federal Reserve lifted short-term rates a quarter-point to a range of 1.50% to 1.75%, as expected.

However, some investors sought the perceived safety of government paper as President Donald Trump prepared to unveil wide-ranging tariffs on Chinese imports later Thursday, with China set to respond with its own countermeasures.

The reemergence of trade tensions between global powerhouses rattled investors, pushing stocks down and bond prices up, market participants said.

Meanwhile, investors were digesting signals from the Fed that it was inclined to maintain the pace of two additional rate increases for the remainder of 2018, while inflation remains tame even as the labor market tightens.

How are Treasurys performing?

The yield on the 10-year Treasury note , sank by 8.1 basis points to 2.826%, after hitting its highest level since Feb. 27 late Wednesday in New York. The 30-year Treasury bond yield retreated by 7.7 basis points to 3.051%.

The 2-year note yield , the most sensitive to expectations for monetary policy, fell 2.9 basis points to 2.287%.

The spread between the 2-year note and the 10-year, a differential bond traders view as a gauge of the long-term economic outlook, was at 53.9 basis points.

Bond prices move in the opposite direction of yields.

What's driving markets?

The White House is set to unveil levies on Chinese imports, reigniting concerns that the U.S. is on the verge of entering a trade war, which could be disruptive, at least in the short term, to broader markets.

The Trump administration plans to release on Thursday (http://www.marketwatch.com/story/trump-set-to-propose-new-trade-restraints-tariffs-against-china-on-thursday-2018-03-20) a package of proposed punitive measures aimed at China that include tariffs on imports worth at least $30 billion.

See: U.S. soybeans would be China's biggest weapon in a trade war (http://www.marketwatch.com/story/us-soybeans-would-be-chinas-biggest-weapon-in-trade-war-2018-03-17)

The U.S. stock market traded lower across the board, with the Dow Jones Industrial Average , Nasdaq Composite Index and the S&P 500 index were all down by around 1%, as investors steered away from so-called risk assets like stocks.

Congressional leaders reached an agreement (http://www.marketwatch.com/story/congressional-leaders-agree-on-13-trillion-spending-bill-to-avert-shutdown-2018-03-21) late Wednesday on a spending bill that would fund the U.S. government until October. Lawmakers now have two days to consider and pass the 2,232-page bill before the current funding expires at 12:01 a.m. Saturday.

What data are ahead?

Weekly jobless claims rose by 3,000 to 229,000 (http://www.marketwatch.com/story/jobless-claims-edge-up-3000-to-229000-2018-01-18)for the seven days ending March 17, near a 45-year low, with economists polled by MarketWatch expecting 225,000 claims.

What are strategists saying?

"There are two risks with a trade war: one, it slows growth, second, it raises inflation. That may eventually be bad for bonds, but that's a secondary consideration," said Kathy Jones, chief fixed income strategist at Schwab Center for Financial Research. But for now, it would produce haven-related buying, she said.

"Anytime you play with trade and making trade tougher for other countries to participate, I think that's a short-term negative for equity markets and good for bonds," said Tom di Galoma, managing director for Treasurys trading at Seaport Global Securities.

As for the Fed move, di Galoma said he read the Fed and Powell's policy update as relatively dovish, or less aggressive about raising rates than earlier expectations.

"I think there was a general perception, say a month a go, that all of the Fed governors were all taking four rate hikes in 2018," he said.

He was referring to the Fed's guidance, which suggests the Federal Open Market Committee is still set to lift benchmark rates two additional times this year--less aggressive than some strategists and traders had forecast.

What are other assets doing?

U.K. 10-year government bond yields , known as gilts, were down at 1.454% on Thursday, compared with 1.528% in the previous session.

The Bank of England held rates steady, but two members of its monetary policymaking committee voted in favor of a hike in March, setting the stage for a rate increase in May. Figures released Wednesday showed U.K. wages grew by 2.6% in January (http://www.marketwatch.com/story/uk-wage-growth-accelerates-in-january-2018-03-21), adding to the case for tightening monetary policy.

(END) Dow Jones Newswires

March 22, 2018 10:55 ET (14:55 GMT)