By Sam Goldfarb

U.S. government-bond prices fell Tuesday after President Trump announced an incremental approach to imposing tariffs on about $200 billion in Chinese goods, comforting investors who had feared a more aggressive tack.

In recent trading, the yield on the benchmark 10-year U.S. Treasury note was 3.027%, according to Tradeweb, compared with 3.001% late Monday.

Yields, which rise when bond prices fall, first declined and then climbed along with global stocks after President Trump said a 10% tax would be imposed on Chinese goods starting Sept. 24, with the rate rising to 25% at the end of the year.

Reflecting demand for riskier assets over safer ones, yields continued to rise even after China said Tuesday that it would retaliate by imposing tariffs on $60 billion of U.S. goods.

"Seemingly, there was an expectation that the tariffs that were going to be implemented were going to be at the higher 25% rate, and they're initially at 10%, so I think there's some relief reaction to that," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co.

Another factor putting pressure on Treasurys is the large amount of new corporate debt being sold this week, analysts and traders said. When businesses sell new bonds, investors often respond by selling Treasurys to make room in their portfolios or hedge their exposure to rising interest rates.

Tuesday's selling marked a break from a recent pattern, in which a 3% 10-year yield brought strong demand from investors. Monday's 3.001% close was the highest since May 23, though still well below the 2018 high of 3.109% set on May 17.

In recent months, Treasury yields have been simultaneously buoyed by optimism about the U.S. economy and constrained by concerns about the outlook elsewhere in the world, especially in an environment of unsettled global trade relations.

Given the strength of U.S. economic data and commitment from the Federal Reserve to keep raising interest rates, some investors have believed it was only a matter of time before the 10-yield broke through the top of its recent trading range.

Many, however, also say it will be difficult for yields to rise much higher from here without a meaningful increase in inflation, which is a main threat to bonds because it erodes the purchasing power of their fixed returns.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

September 18, 2018 11:30 ET (15:30 GMT)

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