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May 27, 2020, 3:44 p.m. EDT

Treasury yields come off highs after Fed’s Williams talks up yield-curve control policy

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By Sunny Oh

U.S. Treasury yields slipped Wednesday after a Federal Reserve official talked up the possibility of implementing yield-curve control measures in the U.S.

What are Treasurys doing?

The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +0.53%  fell 2 basis points to 0.677%. The 2-year note rate /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -7.10% edged 0.4 basis points up to 0.182%. The 30-year bond yield /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y +0.22%   was down 0.8 basis point to 1.430%.

What did market participants’ say?

Bond prices strengthened after New York Fed President John Williams said the central bank was thinking about the use of policies that would aim to keep borrowing costs across different maturities of government paper at fixed levels. Such measures could prevent yields for the targeted bonds from rising.

“Yield-curve control, which has now been used in a few other countries, is, I think, a tool that could complement, potentially complement, forward guidance and our other policy actions,” said Williams.

In addition, The Fed’s Beige Book, a collection of anecdotes from businesses across the country, showed the economic downturn caused by the coronavirus was continuing in May.

Adding to the downward pressure in yields, tensions between Washington and Beijing heated up over security laws set to be passed in Beijing this week that would reduce Hong Kong’s fragile autonomy.

U.S. Secretary of State Mike Pompeo said Hong Kong was no longer autonomous from China. His remarks could foreshadow the loss of the Asian financial hub’s special trading status with the U.S.

Bonds were initially under pressure in overnight trading as European Commission president Ursula von der Leyen asked for the power to borrow €750 billion for a recovery fund, with much of the funds given as grants to hard-hit member states of the eurozone. This comes after Germany and France proposed a €500 billion recovery fund last week.

The yield for the 10-year German government bond /zigman2/quotes/211347112/realtime BX:TMBMKDE-10Y +1.85%   rose a single basis point to negative 0.42%, while the Italian 10-year bond /zigman2/quotes/211347230/realtime BX:TMBMKIT-10Y +0.12%   fell by 3 basis points to 1.51%. This narrowed their relative spread by 5 basis points to 1.92 percentage points.

See : Euro surges on reports of €750 billion EU stimulus package

What did market participants’ say?

There was “no one specific reason behind the bid but headlines surrounding China/Hong Kong and comments by Williams on [yield-curve control] attributed to the rally,” said Justin Lederer, Treasury rates analyst at Cantor Fitzgerald.

/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
0.63
+0.0033 +0.53%
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July 15, 2020 2:50a
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/zigman2/quotes/211347045/realtime
add Add to watchlist BX:TMUBMUSD02Y
BX : Tullett Prebon
0.16
-0.01 -7.10%
Volume: 0.00
July 15, 2020 2:49a
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/zigman2/quotes/211347052/realtime
add Add to watchlist BX:TMUBMUSD30Y
BX : Tullett Prebon
1.32
+0.0029 +0.22%
Volume: 0.00
July 15, 2020 2:49a
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/zigman2/quotes/211347112/realtime
add Add to watchlist BX:TMBMKDE-10Y
BX : Tullett Prebon
-0.44
+0.0082 +1.85%
Volume: 0.00
July 15, 2020 8:50a
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/zigman2/quotes/211347230/realtime
add Add to watchlist BX:TMBMKIT-10Y
BX : Tullett Prebon
1.21
+0.0015 +0.12%
Volume: 0.00
July 15, 2020 8:50a
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Sunny Oh is a MarketWatch fixed-income reporter based in New York.

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