U.S. Treasury yields fell Wednesday after news reports suggested a phase one trade deal between Washington and Beijing may not be completed this year, spurring inflows into government paper.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -1.66% fell 4.8 basis points to 1.737%, its lowest since Nov. 1, while the 2-year note rate TMUBMUSD02Y, -1.03% declined 2.4 basis points to 1.572%, also its lowest since Nov. 1. The 30-year bond yield TMUBMUSD30Y, -1.29% slipped 5.1 basis points to 2.203%, its lowest since Oct. 31.
What’s driving Treasurys?
Trade talks between the U.S. and China are in danger of hitting an impasse, threatening to derail the Trump administration’s plan for a limited “phase-one” pact this year, according to the Wall Street Journal, citing former administration officials and others. A Reuters news report later said the trade deal may not be completed this year.
The Senate passed a bill that would require the U.S. Secretary of State to certify every year that Hong Kong was sufficiently independent from Beijing, and would also ban the export of U.S.-made crowd control equipment to Hong Kong. The bill will now proceed to the House, which already passed its own version of the bill in October.
In response, China accused the U.S. of interfering in its domestic affairs, according to Chinese foreign ministry spokesperson Geng Shuang.
See: Wall Street doubts grow as U.S. and China struggle to finish off ‘skinny’ trade deal
Both sides remain divided over core issues—including Beijing’s demand for removing tariffs and the U.S.’s insistence on China buying farm products—nearly six weeks after an “agreement in principle” was announced by the White House on Oct. 11.
Stock-markets retreated as investor expectations a swift trade deal wane. The S&P 500 SPX, -0.38% and the Dow Jones Industrial Average DJIA, -0.40% finished lower on Wednesday.
The minutes from the Federal Reserve’s October meeting showed that concerns around the economy had eased among the U.S. central bank’s policy making group. Fed Gov. Lael Brainard said she expected “above-trend” growth for the economy over the next 18 months, though she noted that risks remain tilted to the downside.
What did market participants’ say?
“Investors are coming round the view that the inertia between the U.S. and China is not going to be solved anytime soon notwithstanding the protestations by U.S. officials that a deal is close,” wrote Kenneth Broux, a strategist at Société Générale. “One wonders if US Senate backing for protesters in [Hong Kong] has effectively reduced the chances of a deal to zero.”