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 (XTUP:BX:TMUBMUSD10Y) surged 7.8 basis points to 1.865%, its highest since Sept. 13, while the two-year note rate (XTUP:BX:TMUBMUSD02Y) was up 3.8 basis points to 1.633%. The 30-year bond yield (XTUP:BX:TMUBMUSD30Y) 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 (XTUP:BX:TMBMKJP-10Y) jumped 6.3 basis points to negative-0.117%. while the 10-year German government bond yield (XTUP:BX:TMBMKDE-10Y) 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 (DOW:DJIA) and Nasdaq Composite (NASDAQ:COMP) 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.
