Bessent Floats US-China Trade Truce

Yields end the day largely unchanged as US-China tensions play out. UST yields traded in a 5 bp range today as markets continued to process the impact of trade tensions between the US and China. Yields declined by 2-3 bps overnight, but rose throughout the morning and much of the afternoon. Yields ended the day somewhat unchanged, with the 2-year yield at 3.50%, ~4 bps higher than its intraday low, while the 10-year yield ended flat at 4.03%. Meanwhile, equities were volatile today, with the S&P 500 climbing as much as 1.2% this morning before ultimately closing 0.40% higher on the day.

Bessent floats truce extension if China reverses rare earth export controls. Treasury Secretary Scott Bessent said today that a tariff truce extension is possible if China reversed their recently announced export controls on rare earth minerals. The statement comes as US-China tensions remain high, and as the current 90-day truce nears its early November expiration date. Bessent also suggested a new truce could be longer than the prior, which was 3-months. Separately, Bessent noted that he expects a coordinated response to China’s recent trade aggressions, stating “We’re going to be speaking with our European allies, with Australia, with Canada, with India and the Asian democracies.” Despite the tension, Bessent indicated that President Trump and President Xi are still likely to meet in the coming weeks, and added that he himself would also likely be traveling to Asia to meeting Chinese Vice Premier He Lifeng.

Miran, Waller speak on economic outlooks. Fed Governor Stephen Miran argued today that rekindled US-China trade tensions have made near-term rate cuts an even greater priority. Miran, who has been an outspoken dove since being appointed as Fed Governor in September, explained, “I wouldn’t say that I want even lower rates now than I did a week or a month ago. However, with the change to the balance of risks, I think it becomes even more urgent that we get to a more neutral place in policy quickly.” Meanwhile, Fed Governor Christopher Waller delivered a speech focused on the potential economic impact of artificial intelligence. Waller offered an optimistic view, saying, “Any sustained productivity growth above 2% will tend to support rising real incomes and living standards without inflation pressure,” he said. “I’m hopeful that AI delivers.”