Bond Report: Treasury Yields Jump On Reports Of Partial U.S.-China Trade Deal

U.S. Treasury yields rose on Friday amid signs that the U.S. was nearing a limited trade deal that could prevent a further escalation of the tariff spat between the two world’s largest economies.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +3.55%  rose 9.9 basis points to a three-week high of 1.748%, contributing to a gain of 23.3 basis points this week.

The 2-year note rate TMUBMUSD02Y, +3.45%  picked up 8.9 basis points to 1.609%, its biggest single-day increase in more than a month. The short-dated note rose 20.9 basis points this week. The 30-year bond yield TMUBMUSD30Y, +1.54%  jumped 6.4 basis points to 2.210%, extending a weeklong climb of 19.3 basis points. Yields for all three maturities marked their biggest weekly increase in a month.

The yield gap between the 10-year Treasury note yield and the 3-month bill TMUBMUSD03M, -0.32%   shifted back into positive territory. A negative spread, or an inverted yield curve, has rattled investors who were worried the bond-market phenomenon could presage a recession.

What’s driving Treasurys?

Hopes that some progress would be reached towards easing U.S.-China trade tensions comes as the Chinese delegation to Washington wraps up its two-day visit. President Donald Trump said the first day of negotiations had gone “really well.”

Bloomberg News reported that both sides had reached a partial trade agreement Friday that could open up the path for a more comprehensive deal. As part of the talks, China would agree to some agricultural concessions and the U.S. would offer some tariff relief. Investors say a suspension of the tariffs set to take effect next week would boost risky assets, at the expense of bonds.

U.S. and British bond-markets came under pressure after U.K. Prime Minister Boris Johnson held talks with Ireland’s head of state Leo Varadkar, who said the meeting had been “very promising.” Talks have been held back by lingering questions over how a border between Ireland and Northern Ireland will be implemented when the U.K. leaves the EU.

The 10-year yield for U.K. government bonds TMBMKGB-10Y, +20.29%  , or gilts, rose 16.6 basis points to 0.712%.

In economic data, the cost of goods imported into the U.S. rose 0.2% last month, but the increase mostly stemmed from higher energy prices. A reading on U.S. consumer sentiment climbed to a three-month high of 96 in October, from 93.2 in September.

The U.S. central bank announced that it would buy $60 billion of Treasury bills every month at least into the second-quarter, starting from next week. The Federal Reserve also said it would conduct overnight repurchase agreements at least through January of next year in order to reduce pressures in funding markets.

What did market participants’ say?

“Markets are giving [speculation of a limited trade deal] more than just a passing thought that something could be announced today or in the coming days. Whether it is a stoppage of tariffs, a “skinny” deal, or a full-fledged trade deal remains to be seen, but at this point, any progress should be rewarded,” wrote Kevin Giddis, chief fixed income strategist at Raymond James.

RECENT NEWS

Market Optimism As S&P500 Briefly Peaks Amid Falling Inflation

The S&P500 index saw a brief all-time high as new data revealed a drop in America's annual inflation rate to 3.4% in... Read more

Sony's Strategic Share Buyback: Impact On Stock Performance

In a bold move signaling confidence in its financial stability and future growth prospects, Sony recently announced a si... Read more

The Hidden Costs Of Investing In BDCs

Business Development Companies (BDCs) are often lauded for their attractive yields, appealing to investors seeking subst... Read more

The Case For Hedging Foreign Exchange Exposure Amidst Economic Divergence

In today's global economy, characterized by increasing economic divergence among major nations, investors face a dauntin... Read more

ETF Market Update: Assessing The Impact Of Receding US Rate Cut Expectations

The ETF market has been subject to significant shifts in recent months, with one of the key drivers being the evolving e... Read more

Market Response: Understanding The Drop In Arm Shares

In the fast-paced world of technology, market reactions can serve as barometers of industry health and company performan... Read more