By Sunny Oh

Treasury yields slipped Monday as traders geared up for President Donald Trump's meeting with his Chinese counterpart Xi Jinping, amid hopes that their get-together could stave off a further escalation of a U.S-China trade clash.

What are Treasurys doing?

The 10-year Treasury note yield slipped 4.5 basis points to 2.021% marking its biggest daily drop in three weeks, while the 2-year note rate also fell 4.5 basis points to 1.737%. The 30-year bond yield tumbled 3.9 basis points to 2.552%.

What's driving Treasurys?

With little U.S. economic data expected this week, investors said they would look towards the upcoming G-20 meeting in Osaka, Japan on Friday and Saturday, where Trump and Xi are set to hold talks over the ratcheting trade dispute between the two largest economies in the world. Market participants are hopeful both sides will hash out a deal to diffuse tensions and set out a path for an eventual removal of tariffs.

Buoying optimism around the talks, reports said U.S. Vice President Mike Pence postponed a speech on China last Friday. In a previous speech in October, Pence had condemned China on its track record of human rights and economic strategy (https://www.scmp.com/news/china/diplomacy/article/3015625/us-vice-president-mike-pences-speech-expected-be-critical), remarks that some viewed as inflaming tensions between Beijing and Washington.

U.S. Treasuries' prices have rallied this year as the lack of progress on a trade resolution has weighed on business investment, trade-dependent manufacturing and consumer confidence.

Geopolitical jitters from Iran continued to spur demand for government paper after Trump signed an executive order imposing further sanctions on Iran (http://www.marketwatch.com/story/trump-signs-executive-order-imposing-financial-sanctions-against-iranian-leaders-2019-06-24).

See: How the Trump-Xi trade meeting could set the stock-market tone for the summer (http://www.marketwatch.com/story/how-the-trump-xi-trade-meeting-could-set-the-stock-market-tone-for-the-summer-2019-06-22)

What did market participants say?

"A commitment to restarting the trade talks seems to be the best obtainable outcome of the Trump-Xi meeting at the G20 (Fri & Sat). Both want a deal but to avoid losing face, both need to get concessions from the other side," wrote Benjamin Schroeder, senior rates strategist for ING.

What else is on investors' radar?

The Ifo institute said its German business climate indicator fell to a reading of 97.4 in June, its lowest since Nov. 2014 (https://www.reuters.com/article/us-germany-economy-ifo/german-business-sentiment-lowest-since-2014-ifo-idUSKCN1TP0UJ). Weakening economic sentiment in the export powerhouse has helped drive down yields for German government paper, or bunds.

The 10-year bund yield fell 2.5 basis points to a negative 0.31%.

(END) Dow Jones Newswires

June 24, 2019 15:36 ET (19:36 GMT)