Treasury yields reverse higher on report Mexico tariffs may be delayed


U.S. government debt yields reversed their earlier decline and climbed higher on Thursday after a report said that the White House is considering delaying the implementation of tariffs on all imports from Mexico.

At around 2:55 p.m. ET, the yield on the benchmark 10-year Treasury note, which moves inversely to price, ticker higher to 2.126%, while the yield on the 30-year Treasury bond was slightly lower at 2.622%. The 2-year Treasury note yield climbed 6 basis points to trade at 1.88%.

The modest risk-on move in afternoon trading came after Bloomberg News reported that the U.S. is debating whether to delay the introduction of President Donald Trump's threatened tariffs on imports from Mexico as talks between the two countries continue.

Mexico is reportedly vying for the postponement and is worried the two sides won't be able to strike a deal before the Monday deadline. 

Movements in the fixed-income market on Thursday also revolved around central bank policy as Wall Street digested the ECB's latest monetary policy decision. The ECB held rates steady on Thursday despite urging from some investors and economists to ease borrowing costs and introduce other forms of stimulus.

The central bank said interest rates on its marginal lending facility and deposit facility would remain unchanged at 0%, 0.25% and -0.40%, respectively. These have been at record lows following the euro sovereign debt crisis of 2011 in an effort to boost inflation and stimulate growth.

Ongoing trade tensions have fostered fears of a slowdown in global growth and have kept pressure on risk markets and sparked appetite for Treasurys. ECB President Mario Draghi acknowledged those signs during a speech following the central bank's policy decision on Thursday.

"The prolonged presence of uncertainties related to geopolitical factors, the rising threat of protectionism and vulnerabilities in emerging markets is leaving its mark on economic sentiment," Draghi said, as he addressed reporters during a news conference in Vilnius, Lithuania.

"Looking ahead, the governing council is determined to act in case of adverse contingencies."

In the U.S., New York Federal Reserve President John Williams said that global central banks need to change their tactics in dealing with anemic prices, which he labeled "a symptom of deeper problems affecting advanced economies."

"In the pre-2008 era, inflation was a major concern for the public and central banks alike," the leader of the Fed's key district said in prepared remarks for a speech at the Council on Foreign Relations in New York. "And, while I will always be vigilant about inflation that's too high, inflation that's too low is now a more pressing problem."

Both Draghi and Williams followed a Tuesday address by Fed Chair Jerome Powell, who said that the U.S. central bank will keep an eye on current developments in the economy, and would do what it must to "sustain the expansion."

Those Tuesday remarks fueled expectations that the U.S. central bank is moving closer to cutting interest rates, a forecast that sent investors piling into equities. The Dow Jones Industrial Average is up more than 700 points over the last two sessions.

However, short-term U.S. government debt yields slumped on Wednesday after a gauge of private employment showed a sharp contraction in job creation in the month of May.

Markets will be monitoring ongoing global trade tensions, particularly the threat from President Donald Trump to impose a 5% tariff on all Mexican imports, in a political ploy criticized even by members of his own party. On the data front, jobless claims, first-quarter productivity and unit labor cost figures are expected at 8:30 a.m. ET, along with April's international trade figures.

—CNBC's Elliot Smith, Jeff Cox and Matt Clinch contributed to this article.