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Nov. 5, 2019, 4:28 p.m. EST

10-year Treasury yield hits seven-week high amid hopes for U.S.-China trade deal

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By Sunny Oh

Global bond yields rose Tuesday as hopes for a partial U.S.-China trade deal dampened demand for government paper in the U.S., Europe and Japan.

What are Treasurys doing?

The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y +8.32%   surged 7.8 basis points to 1.865%, its highest since Sept. 13, while the two-year note rate /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y +10.22%   was up 3.8 basis points to 1.633%. The 30-year bond yield /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y +6.66%   climbed 7.4 basis points to 2.348%, marking its biggest one-day climb since Sept. 25.

What’s driving Treasurys?

The Wall Street Journal and other media said the White House was considering rolling back some existing tariffs on $111 billion of Chinese imports that had been imposed on Sept. 1 in order to finalize the so-called “phase one” deal. Originally, the deal was only expected to prevent the imposition of additional tariffs set to kick in at mid-December.

The positive trade developments also spurred selling in overseas bond markets. The 10-year Japanese government bond yield /zigman2/quotes/211347248/realtime BX:TMBMKJP-10Y +46.10%   jumped 6.3 basis points to negative-0.117%. while the 10-year German government bond yield /zigman2/quotes/211347112/realtime BX:TMBMKDE-10Y +0.41%   was up 3.9 basis points to negative-0.312%, according to Tradeweb data.

Stocks finished slightly higher Tuesday, with the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +1.87%   and Nasdaq Composite /zigman2/quotes/210598365/realtime COMP +0.93%   posting record closes for their second straight day.

See : ‘A reflationary boom’ won’t be enough to send depressed bond yields higher, says JPMorgan

U.S. economic data also undermined safe-haven demand, with the Institute of Supply Management’s U.S. service sector activity index rising to 54.7% in October, up from 52.6% in September. Any reading above 50 indicates improving conditions.

An auction for $38 billion of U.S. Treasury three-year notes drew solid demand after the bond-market selloff helped push yields to more attractive levels for income-hungry investors. The Treasury Department said because the three-year notes sold at an interest rate and maturity matching an issue of a 10-year note, it would be considered a reopening of the 10-year note.

Investors also watched several speeches from senior Federal Reserve officials throughout the session. Richmond Fed President Thomas Barkin said a recession was not imminent.

What did market participants say?

“Trade progress via the U.S. and China being said to consider partial tariff rollbacks, coupled with most recent top-tier data prints coming in stronger than consensus, paints a textbook picture for higher rates and equities as near-term recessionary fears moderate,” said Jon Hill, an interest-rate strategist at BMO Capital Markets, in a research note.

add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
+0.11 +8.32%
Volume: 0.00
Dec. 7, 2021 1:17a
add Add to watchlist BX:TMUBMUSD02Y
BX : Tullett Prebon
+0.06 +10.22%
Volume: 0.00
Dec. 7, 2021 1:18a
add Add to watchlist BX:TMUBMUSD30Y
BX : Tullett Prebon
+0.11 +6.66%
Volume: 0.00
Dec. 7, 2021 1:18a
add Add to watchlist BX:TMBMKJP-10Y
BX : Tullett Prebon
+0.02 +46.10%
Volume: 0.00
Dec. 7, 2021 3:00p
add Add to watchlist BX:TMBMKDE-10Y
BX : Tullett Prebon
+0.0016 +0.41%
Volume: 0.00
Dec. 6, 2021 6:00p
US : Dow Jones Global
+646.95 +1.87%
Volume: 418.75M
Dec. 6, 2021 5:09p
US : Nasdaq
+139.68 +0.93%
Volume: 4.45M
Dec. 6, 2021 5:16p

Sunny Oh is a MarketWatch fixed-income reporter based in New York.

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