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Yields on long end fall after U.S. slaps tariffs on EU, Canada, Mexico

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By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – U.S. long-dated Treasury yields fell on Thursday after the United States imposed tariffs on steel and aluminum imports form the European Union, Canada and Mexico, reigniting fears of a trade war.

U.S. 10-year note and 30-year bond yields, which move inversely to prices, have fallen in five of the last six sessions, reversing an uptrend that has been in place for the last couple of months.

The United States on Thursday said it was moving ahead with tariffs on aluminum and steel imports from Canada, Mexico and the European Union, ending a two-month exemption. U.S Commerce Secretary Wilbur Ross told reporters on a telephone briefing that a 25 percent tariff on steel imports and a 10 percent tariff on aluminum imports from the EU, Canada and Mexico would go into effect at midnight.

In response to the U.S. tariff announcement, the European Union will impose countermeasures, said the head of the bloc’s executive, Jean-Claude Juncker.

“There’s a lack of clarity about whether it will be pushed through, and it seems at least on the political front in the U.S. … it’s not quite as fixed as the headlines make it seem,” said Aaron Kohli, interest rates strategist, at BMO Capital Markets in New York.

“Some of those sanction headlines are just posturing, it’s not pure substance. Making it difficult to handicap comes from that kernel of how reliable is this,” he added.

A tame core U.S. inflation reading has also weighed on interest rates, analysts said, with the core PCE price index, the Federal Reserve’s preferred inflation gauge, posting an unrounded increase of 0.157 percent.

The other components of the report – U.S. personal spending and income – were solid but had minimal impact on Treasuries.

Other economic reports were mixed, with a strong U.S. Midwest manufacturing index and weak pending home sales data.

“The core was on the soft side, and that has contributed to the slumping yields,” said Gennadiy Goldberg, interest rates strategist, at TD Securities in New York.

In morning trading, U.S. 10-year yields fell to 2.831 percent <US10YT=RR>, from Wednesday’s 2.844 percent.

U.S. 30-year yields dropped to 2.997 percent <US30YT=RR>, from 3.017 percent late on Wednesday.

On the short end of the curve, U.S. 2-year yields were up at 2.423 percent <US2YT=RR>, from Wednesday’s 2.411 percent.

(Reporting by Gertrude Chavez-Dreyfuss; additional reporting by Karen Brettel, editing by Jonathan Oatis)

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