U.S. Treasury yields bounced off their lows on Tuesday as better-than-expected housing and industrial data underlined the resilience of American growth, helping to offset geopolitical jitters around the possibility of a no-deal Brexit.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -0.09% held steady at 1.888%, above its intraday low of 1.854%, while the 2-year note yield TMUBMUSD02Y, +0.01% was off a basis point to 1.633%, while the 30-year bond yield TMUBMUSD30Y, -0.14% rose 0.7 basis point to 2.316%.
What’s driving Treasurys?
Good economic data helped erase the bond market’s gains on Tuesday.
U.S. housing and industrial production data suggested parts of the economy improved in November. Home builders increased new construction at an annual pace of 1.365 million in November, an increase of 3.2% from October’s pace.
November industrial production and capacity utilization showed a 1.1% increase in November, the largest monthly increase in two years, after the end of the General Motors strike.
Several Federal Reserve officials spoke, too. Dallas Fed President Robert Kaplan said he had penciled in no interest rate changes in 2020, in line with the central bank’s dot plot projections which showed the median member of the Fed’s rate-setting committee had expected the central bank to stand pat next year. Boston Fed President Eric Rosengren also said he wanted the central bank to forebear from further interest-rate moves in 2020.
The initial rally in Treasurys came as U.K. Prime Minister Boris Johnson said he would look to pass a law that would force Britain to come up with a trade deal in the next few months or crash out of the European Union on the World Trade Organization’s terms. Johnson’s Conservative party won an overwhelming majority in Parliament, which some have understood as giving Johnson a broad mandate to carry out Brexit.
His announcement underlined the risk of a no-deal Brexit, spurring a rally in U.K. government paper, or gilts. The British 10-year bond yield TMBMKGB-10Y, -7.28% slumped 6.4 basis points to 0.762%, Tradeweb data show.
What did market participants’ say?
“New cycle highs in building permits and a rebound in industrial production/capacity utilization are a welcome development to support bearish pressure in the Treasury market, but hardly new at this point,” wrote Jon Hill, an interest-rate strategist at BMO Capital Markets.