U.S. government debt prices were little changed on Tuesday as investors monitored the latest news around U.S.-China trade talks and digested comments from the top Federal Reserve official.
"Potus needs a positive outcome over the next two weeks," Gregory Faranello, head of U.S. rates at AmeriVet Securities, said in a note. He "is at the weakest moment in his Presidency. Bar none."
"We are now in the final stretch of 2019, and the risks globally have never been higher," Faranello said. "We have argued the next leg in the markets will be driven by the 'dynamics' around US and China. And those dynamics cut both ways."
The U.S. expanded its trade blacklist to include some of China's top artificial intelligence firms on Monday, punishing Beijing for its treatment of predominantly Muslim ethnic minorities. China's foreign ministry said to "" for retaliation following the blacklist expansion.
Meanwhile, China is subtly downplaying expectations for the U.S.-China trade talks that are set to begin Thursday. The South China Morning Post pointed out Chinese Vice Premier Liu He will not carry the title of "special envoy" at this week's talks. This signals Chinese President Xi Jinping did not hand Liu any specific instructions for the negotiations.
However, Chinese state-owned Global Times said China is "sincerely" looking forward to reaching a trade deal with the U.S., sending mixed signals throughout capital markets.
The world's two largest economies have imposed tariffs on billions of dollars' worth of one another's goods since the start of 2018, battering financial markets and souring business and consumer sentiment.
"The economic toll from the U.S.-China trade war is still rising, with other trade tensions also escalating," said Peter Perkins, partner at MRB Partners. Perkins noted the firm's "working assumption" is tensions between China and the U.S. will ease, but "it is needed sooner rather than later, and needs to be broad-based."
On the data front, the U.S. producer price index fell 0.3% in September, its biggest one-month drop since January.
Investors also pored through comments from Federal Reserve Chairman Jerome Powell. In a speech, he said the central bank would expand its balance sheet "soon." He noted this measure will be used as a response to the recent funding issues the bond market faced in recent weeks.
To be sure, this is not quantitative easing. Rather, Powell was referring to a more gradual increase to the balance sheet.