Investors are more worried about the bond market than the ongoing U.S. trade war with China, Wall Street veteran Jim Paulsen told CNBC on Tuesday.

Wall Street is now reacting to "fear" rather than to "fundamentals," the chief investment strategist at Leuthold Group said on "The Exchange." "The stock market is wondering, 'What does the bond market know?'"

"The bond market [is] the primary thing that investors are worried about at this point above the trade war," he said.

The yield on the benchmark 10-year Treasury note, which moves inversely to price, fell to a 19-month low Tuesday as Wall Street grew more certain that the U.S.-China trade war will last longer and afflict GDP growth more than first thought.

The world's two largest economies increased tariffs on one another this month, with the U.S. making the first move by increasing duties on $200 billion worth of Chinese products from 10% to 25%. China announced plans to raise tariff rates on $60 billion in U.S. goods. The tactics amplified a fight that has rattled financial markets and threatened to drag on the global economy.