By Akane Otani 

U.S. government bonds strengthened Tuesday as rising tensions between the U.S. and China drove investors into the safety of sovereign debt.

The yield on the benchmark 10-year U.S. Treasury note recently traded at 2.893%, according to Tradeweb, compared with 2.926% Monday. Yields fall as bond prices rise.

Yields slid overnight with U.S. stock futures as investors parsed the latest escalation in the conflict between the U.S. and China over trade policy. President Donald Trump asked his administration Monday to draw up a list of an additional $200 billion of Chinese goods that the U.S. could hit with tariffs, upping the ante after he approved tariffs on about $50 billion of Chinese goods last week.

Many investors and analysts fear tit-for-tat trade policies could ultimately dent economic growth, something that has kept global markets on edge in recent months and helped stall a climb in bond yields.

"The fear from here is a continued back and forth, escalating trade penalties on both sides with a further negative impact on growth," said Lindsey Piegza, chief economist at Stifel, in a research note.

Treasury yields then held on to their declines after data from the Commerce Department came in mixed, showing U.S. housing starts rebounding at the fastest pace since 2007, but residential building permits falling more than expected.

Strong economic data tends to dull investor demand for Treasurys, which investors tend to be drawn to when the global outlook looks uncertain.

The yield curve, which measures the spread between short- and long-term interest rates, narrowed further Tuesday, with the gap between the 2- and 10-year Treasury note narrowing to 0.36 percentage point, the lowest since Aug. 27, 2007, according to the WSJ Market Data Group.

Write to Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

June 19, 2018 10:20 ET (14:20 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.