By Sunny Oh
U.S. Treasury yields ended slightly lower Tuesday after President Donald Trump said the first leg of a U.S.-China trade deal was “close” to being finalized in a speech in New York, but disappointed in terms of providing more concrete details about the state of trade negotiations.
What are Treasurys doing?
The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -9.87% fell 2.1 basis points to 1.909%, reversing a two-session climb. The two-year note rate /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y -21.86% slipped 1.4 basis points to 1.650%, while the 30-year bond yield /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y -6.92% shed 3 basis points at 2.385%.
What drove Treasurys?
Trump spoke at the Economic Club of New York at midday and said a deal “could happen soon” to advance the first phase of a U.S.-China trade agreement, but failed to offer more concrete details about his multi-front trade spat.
Trump instead touted a strong economy, railed against the Federal Reserve’s tempered pace of rate cuts and boasted of double-digit gains for U.S. stocks under his watch, which he claimed gave him “latitude” to renegotiate prior trade deals.
Over the weekend, Trump said he hadn’t “agreed to anything,” in terms of rolling back tariffs on Beijing and throwing doubt on the possibility of a partial trade resolution this month.
Ahead of the speech, Reuters reported that the president was expected to announce, at some point this week, a protracted timetable for deciding whether to place tariffs on cars and auto-part imports from the European Union, citing European officials.
Lacking more detail on those fronts, bond yields declined only slightly.
As for the Federal Reserve, Philadelphia Fed President Patrick Harker and Minneapolis Fed President Neel Kashkari will speak Friday. Fed Vice Chairman Richard Clarida said factors other than quantitative easing may have contributed to the dramatic shrinkage of the so-called term premium, the additional yield investors demand for owning longer-dated debt.
Fed Chairman Jerome Powell will testify in front of Congress on Wednesday and Thursday, in his first public comments since the central bank lowered interest rates in October.
Elsewhere, Japanese bond markets restarted their months-long selloff, with the 10-year Japanese government bond yield /zigman2/quotes/211347248/realtime BX:TMBMKJP-10Y -9.62% rising 4 basis points to negative-0.02% Tuesday, from its August low of negative-0.29%.
What did market participants say?
“The Treasury market remains in consolidative mode as President Trump’s speech provided little in the way of new information; unemployment is at multi-decade lows, equities are at record highs, a trade deal is being worked on, and the White House still wants negative rates,” wrote a team of rates strategists led by Jon Hill at BMO Capital Markets Corp, in a client note.
They noted that 10-year yields were within the 1.89% to 1.97% zone that has held since last week’s 30-year bond auction.
“What was missing were details about progress on phase one of the trade deal with China or the status of auto tariffs, which may be placed on imports from the European Union,” said Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, in an email.