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Fading confidence over the Trump administration’s ability to push through proposed tax reform along with continued geopolitical uncertainty sent investors scrambling for the relative safety of US government bonds on Tuesday.
The yield on the benchmark 10-year US Treasury note – which moves inversely to price – dropped nearly 9 basis points to 2.1629 per cent, its lowest level in five months.
Yield on the more policy-sensitive 2 year note fell 4.4bps to 1.1564 per cent – a near-two month low.
The risk-off mood also extended to the equity market, with US stocks all closing in the red on Tuesday. The S&P 500 ended the day 0.3 per cent lower at 2,342.19, while the Dow Jones Industrial Average, weighed down by the sell-off in Goldman Sachs shares, shed 0.6 per cent to 20,523.28. The tech-heavy Nasdaq Composited dipped 0.1 per cent to 5,849.47.
Treasury yields have been trending lower since mid-March after the Federal Reserve left its forecast for the pace of 2017 rate hikes unchanged. A spate of meek US economic data, along with the White House’s humiliating failure to pass healthcare reform has also cast doubts over whether a more aggressive pace of rate hikes would be needed.
At the same time US military actions in Syria and Afghanistan along with escalating tensions with North Korea have also boosted demand for haven assets.