By Sunny Oh
U.S. Treasury yields fell Tuesday as trading appeared to track the progress of political developments, including U.K. Prime Minister Boris Johnson’ Brexit deal, which met some struggles to make its way through Parliament.
What are Treasurys doing?
The 10-year Treasury yield (XTUP:BX:TMUBMUSD10Y) was down 2.6 basis points to 1.768%, after hitting a more than four-week high on Monday, while the 2-year note rate (XTUP:BX:TMUBMUSD02Y) decline 0.8 basis point to 1.607%. The 30-year bond yield (XTUP:BX:TMUBMUSD30Y) slipped 3.5 basis points to 2.251%.
Debt prices rise as yields fall.
What’s driving Treasurys?
On Tuesday, U.K’s Parliament voted to agree in principle with Johnson’s Brexit deal as he looks to ratify his proposal before Oct. 31. But lawmakers rejected his short timetable, underlining how Johnson’s proposals still has plenty of obstacles to negotiate.
Either way, investors say the probability of a no-deal Brexit has dimmed, soothing a longstanding source of geopolitical concerns that has driven investors into government bonds.
In economic data, existing-home sales for September ran at an annual rate of 5.38 million, near the 5.40 million expected by MarketWatch polled economists.
Separately, the Treasury Department sold $40 billion of 2-year notes in the afternoon, amid worries that primary dealers’ balance sheets are bloated with government paper.
To take down the U.S. government’s rising debt issuance, market participants said some dealers may have been unwilling to use their reserves at the Federal Reserve to finance the purchases and instead used funds from the so-called repo market. This exacerbated the demand for cash and added to the strains in markets for short-term borrowing that had flared up earlier in September.
What did market participants’ say?
“Brexit headlines continue to take the lion’s share of the geopolitical attention as the October 31 deadline approaches, and with the fluid situation in Westminster not offering clarity just yet, we suspect this dynamic will persist for the time being,” wrote Jon Hill, an interest-rate strategist at BMO Capital Markets.