Treasury prices came off session lows Wednesday, pushing yields higher, after a poor debt auction and increased trade optimism weighed on trading for government paper.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -0.83% climbed 3.6 basis points to 2.484%. The 2-year note yield TMUBMUSD02Y, -1.41% was up 1.2 basis points to 2.295%. The 30-year bond yield TMUBMUSD30Y, -0.50% rose 3 basis points to 2.892%. All three maturities snapped three straight declines. Bond prices move in the opposite direction of yields.
See: Here’s how trade uncertainty could send the 10-year Treasury yield plunging below 2.40%
What’s driving the market?
President Donald Trump said China was coming to the U.S. to make a deal on Wednesday, giving some hope to investors who were uncertain about the state of progress in U.S.-China trade negotiations. The increase in trade optimism helped to dampen demand for haven assets like U.S. government paper, lifting their yields.
Yields traded initially lower after Reuters reported China had tried to backtrack from previous negotiations last Friday, days before Trump tweeted his vow to hike tariffs on $200 billion of Chinese imports to 25% on Friday from the current 10%.
See: ‘China has chosen to retreat’ — the U.S. view as negotiations reach critical juncture
Adding to the bearish action, the Treasury Department’s sale of $27 billion of its benchmark 10-year notes “tailed” by 1.4 basis points, a sign of weak demand. The tail is the gap between the highest yield the Treasury sold in the auction and the highest yield expected when the auction began — the “when issued” level.
Debt sales can influence the direction of trading in the outstanding market as broker-dealers make way for the fresh influx of supply by bidding yields higher.
And U.S. equities were on course to end slightly higher on Wednesday, with the S&P 500 SPX, -0.16% and the Nasdaq COMP, -0.26% up 0.2%.
What did market participants say?
“The weakness in the bidding might boil down to the fact that [the 10-year Treasury yield] has just [fallen] too far, too fast, and there isn’t a lot of further upside at this yield,” said Thomas Simons, senior money market economist at Jefferies.
“The one comforting takeaway is that there are no strong signs that China is pulling back as a consequence of the heightened tension in the trade talks,” said Simons.
“Generally, there’s some hope that over the next couple of days, we’re going to see something good come out of the China talks,” said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.
What else is on investors’ radar?
Chinese exports fell 2.7% year-over-year in April, after it gained 14.2% in March. Economists are closely monitoring the good shipments out of the second-largest economy in the world, as they represent the key transmission mechanism between China’s performance and global growth.
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