Australian bond yields drop as ASX 200 turns risk averse on trade tensions

• Aussie bond yields drop along with stocks as trade tensions escalate. 
• China bans imports of red meat from Australia.

Australia's government bond yields are flashing red on Tuesday, as the domestic stock market is putting in a negative performance seemingly due to the nation's escalating trade tensions with China.

At press time, the yield on the 10-year government bond is seen at 0.95%, down 2.5 basis points on the day. Meanwhile, the two-year yield, which is sensitive to near-term interest rate expectations, is trading at 0.23%, representing a 1.3 basis point drop on the day. 

Stocks, too, are feeling the pull of gravity as evidenced by the benchmark S&P/ASX 200 index's 1.5% decline. 

The risk-off sentiment could be attributed to China's decision to ban the import of red meat from Australia's big four major abattoirs, which represent 35% of Australia's total beef exports to China. 

The decision to blacklist the red meat abattoirs has come just days after China flagged plans to introduce an 80% tariff on Australian barley, according to ABC News. "China is playing diplomatic games with Australia", said  Southern Queensland University's Ben Lyons.

The escalating situation on the trade front is also hurting the Aussie dollar. At press time, AUD/USD is trading at 0.6450, representing a 0.6% decline on the day.