U.S. Treasury yields shifted higher on Monday as investors anticipated a “phase one” U.S.-China trade deal following upbeat comments from the Trump administration.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, +2.38% climbed six basis points to 1.787%, its biggest daily climb in three weeks, while the two-year note rate TMUBMUSD02Y, +1.28% edged up 3.2 basis points to 1.594%. The 30-year bond yield TMUBMUSD30Y, +2.34% rose 6.2 basis points to 2.274%, its largest one-day rise in three weeks. Bond prices move in the opposite direction of yields.
What’s driving Treasurys?
U.S. Commerce Secretary Wilbur Ross said Sunday on Bloomberg TV that he was optimistic about the first leg of a trade deal being finalized this month. In addition, he said the United States may “not need” to put tariffs on European cars, following President Donald Trump’s request for the Commerce Department to investigate whether foreign auto makers threatened U.S. national security.
The White House had been deliberating whether to impose tariffs on European autos and parts of up to 25% and earmarked Nov. 14 as its deadline for making a decision.
Demand for haven assets waned as stocks drew strong appetite from market participants. The S&P 500 index SPX, +0.37% , Dow Jones Industrial Average DJIA, +0.42% and Nasdaq Composite COMP, +0.56% closed at record highs on Monday. In Asia, South Korea’s Kospi 180721, +0.58% gained 1.4%, while China’s CSI 300 000300, +0.62% advanced 0.7%.
Last week, the stronger-than-expected nonfarm employment report for October eased concerns around the U.S. labor market’s health, one of the key engines for the economy. Strong employment growth, so far, has helped dampen worries that deteriorating global growth and a contracting manufacturing sector would drag the U.S. into a recession.
What did market participants say?
“Repeated confirmation of trade progress on U.S.-China’s phase-one agreement has slowly eroded Thursday morning’s message that the first phase may not be followed by phases two and three. Interest rates this morning more accurately reflect the good labor market news received Friday, news that never ignited trader imaginations although it did improve risk appetite,” said Jim Vogel, an interest-rate strategist at FHN Financial.
What else is on investors’ radar?
Investors digested some speeches from senior Federal Reserve officials. Minneapolis Fed President Neel Kashkari said the central bank was “effectively on pause for a while,” and said he wanted the Fed to commit to not raising its benchmark interest rate until core inflation returned to a 2% annual growth pace.
The Fed lowered interest rates for the third meeting in a row last Wednesday, but indicated it would stay on hold barring a sharp worsening of the economic outlook.
Lorie Logan, New York Fed senior vice president, said the central bank is open to changing its plan to smoothen the functioning of repo markets, which seized up in September. The Fed is conducting $60 billion of monthly Treasury bill purchases until the second half of next year.