The yield on benchmark Treasury note dropped the most since August on Tuesday after President Donald Trump said he might wait till next year to complete a trade deal with China.
The rate on the 10-year Treasury bond, which moves inversely to price, dropped 14 basis points to around 1.70%, its biggest decline in four months. The yield on the 30-year Treasury bond fell about 12 basis points to around 2.16%.
Trump on Tuesday indicated he might delay a trade agreement between the world's biggest economies until after the 2020 elections.
"In some ways, I like the idea of waiting until after the election for the China deal, but they want to make a deal now and we will see whether or not the deal is going to be right," Trump told reporters earlier on Tuesday. When asked if he had a deal deadline, he added: "I have no deadline, no ... In some ways, I think it is better to wait until after the election if you want to know the truth."
The U.S. and China agreed to work up a so-called phase one trade deal in early October after both sides slapped tariffs on billions of dollars' worth of one another's goods. Market participants had hoped they would reach a limited agreement before the new tariffs on Chinese goods kick in on Dec. 15.
"The market implications of 'no deal' are ostensibly straightforward," Ian Lyngen, BMO's head of U.S. rates said in a note on Tuesday. "Trade war inspired global uncertainties will limit the upside for risk assets and put a ceiling on how far Treasury yields can increase in any bearish episode."
The president also threatened to impose steel and aluminum tariffs on imports from Brazil and Argentina, saying it was necessary because the two countries had been "presiding over a massive devaluation of their currencies."
However, in recent months, both countries have been seeking to strengthen their respective currencies against the dollar.
The South American trade tariffs have rekindled broader concerns about a protracted dispute between the U.S. and China, with investors monitoring the prospect of a limited agreement.
The U.S. Treasury is set to auction $26 billion in 52-week bills on Tuesday.
— CNBC's Sam Meredith contributed to this report.