Treasury Yields Fall to Lowest Since Before 2016 Vote

U.S. government bond yields fell to their lowest levels since before the 2016 presidential election on Friday, completing a remarkable arc tracking the rise and fall of investors’ economic optimism.

Yields, which fall when bond prices rise, have turned sharply lower in recent days, first in response to signs that the Federal Reserve wasn’t planning to lower interest rates as much as investors had expected, and then after President Trump promised new tariffs on China. Both developments led investors to question the outlook for growth and inflation, which plays a major role in setting the level of long-term Treasury yields.

The yield on the benchmark 10-year U.S. Treasury note settled at 1.864%, the lowest since Nov. 7, 2016, the day before Mr. Trump’s electoral victory. The yield was 1.894% on Thursday.

Investors closely follow the 10-year Treasury yield because it serves as a benchmark for a range of interest rates and is seen as a reliable economic indicator.

For a time on Friday, it seemed as if the morning release of a solid July jobs report had perhaps stalled the bond rally. Yields, however, fell into the 3 p.m. close, suggesting more declines could be ahead when traders return next week.

One bright spot of the jobs report was data showing a larger-than-expected increase in workers’ average hourly earnings, a possible sign of inflationary pressure.

Inflation is a major threat to government bonds because it erodes the purchasing power of their fixed payments.

Even so, investors are now widely expecting the Fed to cut interest rates again in September after lowering its benchmark federal-funds rate by a quarter-percentage point on Wednesday. That marks a shift from their view immediately after the Fed meeting, when officials signaled they were in no rush to cut rates again.

Investors were already starting to doubt that message early Thursday, even before Mr. Trump promised to extend tariffs to virtually all Chinese imports starting Sept. 1. But that threat led to a further re-evaluation of the Fed’s plans.

Mr. Trump’s role in pushing yields lower is notable because his election in 2016, along with a Republican sweep of Congress, led to a dramatic increase in yields, as investors bet that a platform of tax cuts, regulatory rollbacks and infrastructure spending would boost U.S. growth and the supply of government bonds.

Last year, the yield on the 10-year Treasury note reached as high as 3.2%, partly in response to a spike in gross domestic product growth that followed sweeping tax cuts passed in late 2017. Since then, however, there have been signs of slowing growth around the world, and Mr. Trump’s aggressive trade policies have added to the uncertainty.

In something of a return to their pre-2016 election mind-sets, many investors and analysts now anticipate a prolonged period of monetary stimulus from the world’s major central banks, even as some question the ability of such policies to boost growth and inflation.

Write to Sam Goldfarb at

Write to Sam Goldfarb at

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