By Mark DeCambre, MarketWatch , Sunny Oh

Treasury prices fell Wednesday, pushing up yields, after Federal Reserve Chairman Jerome Powell reasserted the need for gradual rate increases, citing a tight labor market.

This comes a day after an escalation in the tit-for-tat trade skirmish between China and the U.S. drove investors to flee to the perceived safety of government paper. Risky assets across the globe signaled that tariff-spooked markets were reassessing the threat of a trade-war materializing between the world's largest economies.

What are Treasurys doing?

The 10-year Treasury note yield advanced 2 basis points to 2.913%. The 30-year bond yield rose 1.6 basis point to 3.044%. The two-year note yield edged 1.3 basis points higher to 2.558%.

Bond prices move in the opposite direction of yields.

What's driving markets?

Federal Reserve Chairman Jerome Powell reiterated that the central bank needed to gradually hike rates. He also said inflation expectations were well anchored, suggesting investors did not see an inflation flare-up nor question the central bank's commitment to keeping inflation controlled, in an appearance on a panel at the annual European Central Bank Forum on Central Banking in Sintra, Portugal. Rising rates tend to be bearish for bonds by sapping the value of their fixed-interest payments.

See: Fed's Powell says U.S. economy not on verge of repeating 1970s inflation (http://www.marketwatch.com/story/powell-says-us-economy-not-on-verge-of-repeating-the-inflation-of-the-1970s-2018-06-20)

The event comes after the Fed lifted benchmark rates last week by a quarter of a percentage point and its projections for future hikes indicated that policy makers see two additional rate increases in 2018 as appropriate (http://www.marketwatch.com/story/fed-hikes-interest-rates-now-sees-4-moves-this-year-2018-06-13). Meanwhile, the ECB last week outlined its plans to end its crisis-era, easy-money policies (http://www.marketwatch.com/story/ecb-aims-to-end-bond-buying-program-by-end-of-2018-2018-06-14) but indicated it wouldn't move to raise interest rates until at least next summer.

Read:The most recent Fed interest-rate projections known as the dot plot (https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20180613.pdf)

The S&P 500 index looked set to recoup some of the losses driven by President Donald Trump's called request from his administration for a list of $200 billion in Chinese goods to implement a fresh round of tariffs, after he approved levies on $50 billion of goods last week, raising the stakes in a back-and-forth dispute between Beijing and Washington that investors fear risks spilling over into the global economy if it morphs into a genuine trade war.

The modest recovery in risk assets not just in the U.S. but in the rest of the world alleviated the demand for haven investment likes U.S. government paper.

Meanwhile, the European Union announced on Wednesday that it would implement tariffs (http://www.marketwatch.com/story/eu-to-impose-tariffs-on-32-billion-of-us-goods-starting-friday-2018-06-20)on EUR2.8 billion ($3.2 billion) worth of goods imported from the U.S. on Friday, in response to the U.S. imposing respective tariffs of 25% and 10% on aluminum and steel imports from the EU on June 1.

Treasurys have also struggled to rally as corporations sell their debt. Underwriters of the bond issue will sell U.S. government paper to lock in the borrowing cost of the bond issue. After the corporate debt hits the market, the underwriter will buy the Treasurys back. Bayer(BAYN.XE) sold $15 billion of debt on Monday to finance its recent acquisition of Monsanto.

What did market participants say?

"The Treasury market is caught between the dichotomy of heavy corporate bond supply and Washington imposing new trade tariffs on China. Credit supply is causing rates to rise while trade tariffs are causing a safety bid. Central bankers out of Sintra, Portugal, are overall upbeat with Chairman Powell signaling that the U.S. economy is poised for a strong case for gradual rate hikes," said Tom di Galoma, managing director of government trading at Seaport Global Securities.

What data was on investors' radar?

Existing home sales in May ran at an annual pace of 5.43 million (http://www.marketwatch.com/story/existing-home-sales-sink-as-tight-supply-smothers-market-2018-06-20), from 5.45 million in April.

How are other assets doing?

In other assets, European stocks bounced off a nearly three-week low (http://www.marketwatch.com/story/european-stocks-stage-recovery-but-us-china-trade-tensions-remain-2018-06-20), while Asian stocks also saw broad gains (http://www.marketwatch.com/story/asian-markets-struggle-to-recover-from-tuesdays-big-losses-2018-06-19), though the Shanghai Composite Index lagged behind with just a 0.2% rise.

(END) Dow Jones Newswires

June 20, 2018 12:30 ET (16:30 GMT)