U.S. Treasury yields retreated from their highs Friday, but left a weeklong increase intact, amid buoyant risk-on sentiment fostered by a preliminary trade deal between the world’s largest economies.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -0.27% rose 0.9 basis point to 1.916%, after it briefly flirted with a four-month high of 1.95%. The benchmark maturity booked a 9.6 basis point climb this week.
The 2-year note rate TMUBMUSD02Y, +0.79% was up slightly 0.8 basis point to 1.627%, contributing to a 2.3 basis-point gain for week. The 30-year bond yield TMUBMUSD30Y, -0.47% was virtually unchanged at 2.345%, but still logged a sharp 9.4 basis-point rise this week.
The spread between the 2-year note and the 10-year note yield, referred to as the yield curve or yield spread, stood at 29 basis points, slightly below its steepest levels in a year. A positive sloping yield curve can reflect confidence that economic growth will remain healthy and inflation in check.
What’s driving Treasurys?
Investors saw a round of economic data that added strength to the growing conviction the economy isn’t headed for a recession. Since the announcement of a U.S - China trade deal, analysts across Wall Street have started to forecast a stabilization of the U.S. and global economy next year. This optimism has put pressure on bond prices, and lifted yields, while helping stocks to reach new heights.
A final estimate of third-quarter gross domestic product growth came in at an annualized pace of 2.1%, in line with analysts’ forecasts. The University of Michigan’s consumer sentiment survey for December was virtually unchanged at 99.3.
Meanwhile, personal income rose by 0.5% last month, underlining the strength of the consumer. But core personal-consumption expenditures, the Fed’s favorite inflation gauge, was up by a modest 0.14% in November, leaving it up on a yearly basis at 1.6%.
China’s President Xi Jinping said Beijing would work to sign a phase one trade deal soon. But Bloomberg News reported Xi would skip the World Economic Forum in January held at Davos, Switzerland, which could remove one venue where the two world leaders could seal the agreement.
In central banking news, the Bank of England named Andrew Bailey, head of the Financial Conduct Authority, to replace Mark Carney.
What did market participants’ say?
“[10-year Treasury notes] are a bit too confident Phase 1 of US/China trade will work out as expected and buoy the global economy to the extent anticipated by equities. It certainly makes sense, though, that momentum is improving – a contrast to last December,” said Jim Vogel, an interest-rate strategist for FHN Financial.