U.S. Government Bonds Decline After Report of German Stimulus

U.S. government bond prices fell Thursday after a report that the German officials are considering a fiscal stimulus package.

The yield on the benchmark 10-year government note rose to a recent 1.755%, according to Tradeweb, from 1.675% Wednesday.

Yields, which rise as bond prices fall, climbed in the U.S. and Germany following a Reuters report that the German government is considering an increase in spending. Such a plan could provide a jolt to the country’s economy after slow growth raised concerns about a recession.

Investors said that an increase in fiscal support could help Europe’s economy, especially because the European Central Bank has already held interest rates below zero for several years and many remain concerned that additional reductions will provide only a limited boost to growth.

The yield on 10-year German government bunds was a recent negative 0.563%, up from negative 0.601% Wednesday. Investors buying the debt are effectively paying the country to hold their money, because they are paying more than the total of any interest payments and the face value of the security to hold it.

“If governments can issue at zero or negative [yields], it just seems like a sensible thing to do,” said Andre Severino, head of global fixed income at Nikko Asset Management. “Either governments start doing fiscal, or we’re going to continue down that negative rate path.”

The moves came after China’s central bank set the yuan at a stronger-than-expected rate against the dollar, easing concerns that a brewing trade spat between the two countries was about to move into an all-out currency war. The WSJ Dollar Index, which measures the U.S. currency against a basket of 16 others, declined 0.2% to a recent 90.66.

The yield climb marked a pause in the latest leg of this year’s rally, which accelerated after the Federal Reserve reduced interest rates for the first time in more than a decade. Concerns that rising trade tensions could become a greater drag on global growth have also weighed on yields, after President Trump said last week that he would impose additional tariffs on China.

Fed officials have cited the risk of slowing global trade as a risk to the continuation of the U.S. economic expansion.

Federal-funds futures, which investors use to bet on the path of central bank policy, show that investors expect policy makers will lower rates at their meeting in September and perceive the probability of an additional cut at about 90%, according to CME Group data.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

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