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Bonds Yields Boosted by New U.S.-Canada NAFTA Agreement

This article was originally published on ETFTrends.com.

U.S. Treasury bond yields got a boost from the United States and Canada agreeing to a deal that would effectively rework the North American Free Trade Agreement and avert a trade war between the two economic superpowers. Benchmark U.S. debt like the 10-year Treasury rose to 3.074 and the 30-year yield ticked up to 3.224.

In late August, the U.S. struck a deal with Mexico to effectively eliminate NAFTA and create the United States-Mexico Trade agreement--a deal that would likely move forward solely between the two countries if an agreement could not be reached with Canada. However, after continuing negotiations that extended past an initial August 31 deadline, the revamped NAFTA agreement, dubbed the "United States-Mexico-Canada Agreement (USMCA)", was announced Monday.

"This is a terrific deal for all of us," said U.S. President Donald Trump during a press conference following the announcement of the agreement. "This deal will be the most modern, up-to-date and balanced trade agreement in the history of our country."

"Likewise, it will be the most advanced trade deal in the world with ambitious provisions on the digital economy--patents, financial services and other areas where the United States has a strong competitive advantage," Trump added. "Mexico and Canada have agreed to labor protections, environmental protections and new protections for intellectual property."

The USMCA agreement gave the U.S. increased access to Canadian markets for U.S. dairy producers. In turn, Canada obtained a key concession from U.S. negotiators to preserve a dispute resolution process.

Furthermore, the USMCA agreement also includes key provisions with respect to the auto industry that encourages increased U.S. car production, while at the same time, protects Canadian and Mexican companies from the imposition of further U.S. tariffs by the Trump administration.

“Resolution of the trade discussions with Canada after the deal done on Mexico is more relevant today to markets than the details (modest tweaks from NAFTA 1.0). China of course remains the main trade story but American business and its partners to the North and South can now breathe a sigh of relief that this is now done and not subject to more tariffs and the threats of them,” wrote Peter Boockvar, chief market analyst at Bleakley Advisory Group.

Related: Trade Wars Do Not Concern Fed Chair Just Yet

High-Yield Bond ETFs Move Higher

The new NAFTA deal also boosted high-yield bond ETFs like the iShares iBoxx $ High Yield Corp Bd ETF (HYG) and PIMCO 0-5 Year High Yield Corporate Bond (HYS)--HYG was up 0.23% and HYS rose 0.23% as of 1:45 p.m. ET. Last week, bond yields were the beneficiary of the Federal Reserve instituting a third rate hike for 2018 with an increase of 25 basis points to its current federal funds rate level of 2.25.

HYG tracks the investment results of the Markit iBoxx® USD Liquid High Yield Index, which is comprised of high yield U.S. corporate bonds that have less than investment-grade quality. HYS seeks to provide total returns that closely correspond to the ICE BofAML 0-5 Year US High Yield Constrained Index, which is comprised of U.S. dollar denominated below investment grade corporate debt securities publicly issued in the U.S. domestic market with remaining maturities of less than 5 years.

For more market updates, visit the ETFTrends.com.

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