Treasury yields fell from session highs Monday to kick off the holiday-truncated week as strong demand for a government bond auction helped to outweigh reports that Beijing could be willing to alleviate the U.S.’s concerns around intellectual-property violations.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, +0.49% was down a basis point to 1.763%, while the two-year note rate TMUBMUSD02Y, +0.04% fell a basis point to 1.618%. The 30-year bond yield TMUBMUSD30Y, +0.11% edged down 1.6 basis points to 2.207%. Bond prices move inversely to yields.
What’s driving Treasurys?
An auction for $40 billion of two-year Treasury notes stopped “through” 0.3 basis points, an indication of healthy appetite for the debt on sale. A stop-through indicates when the highest yield the Treasury sold in the auction is below the highest yield expected when the auction began — the “when issued” level.
Front-dated Treasurys have been vulnerable to the repricing of interest-rate expectations since Federal Reserve Chairman Jerome Powell described the current monetary policy setting as “appropriate.” But some analysts say there could be room for cuts if the trajectory of economic data deteriorates.
Beijing showed it was willing to make some concessions to secure a phase-one trade deal, announcing it would take steps to penalize those who committed intellectual-property violations. But Reuters reported that there was a dim chance of a phase-two deal before the 2020 U.S. elections, citing Chinese officials.
Investors also paid attention to Hong Kong, where the pro-democracy camp won an overwhelming majority of the seats in the district council election. Some analysts interpreted the local elections as a referendum on recent protests.
See: Pro-democracy candidates make huge gains in Hong Kong local elections
Read: Why are markets ignoring escalating conflict in Hong Kong?
In economic data, the Chicago Fed’s national activity index for October fell to a reading of negative-0.71, from negative-0.45 in the previous month. The Dallas Fed manufacturing index rose to a negative-1.3 in November from negative-5.1 in October.
What did market participants say?
“There is still a persistent bid for short-term, liquid, safe assets,” wrote Thomas Simons, senior money market economist for Jefferies, regarding the successful auction for the two-year notes.