Bond Report: Treasury yields climb after U.K. strikes tentative Brexit deal with EU

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U.S. Treasury and British government bond yields rose sharply on Thursday after the U.K. reached an eleventh-hour agreement to leave the European Union, though it still needs to be approved by the British Parliament on Saturday.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +1.05%   rose 3.5 basis points to 1.780%, while the 2-year note rate TMUBMUSD02Y, +1.30%   was up 2.9 basis points to 1.614%. The 30-year bond yield TMUBMUSD30Y, +0.50%   rose 2.4 basis points to 2.256%.

What’s driving Treasurys?

U.K. Prime Minister Boris Johnson announced the U.K. and European negotiators had managed to strike a tentative Brexit deal, with European Commission President Jean-Claude Juncker saying it was a “fair and balanced agreement.” Investors said the breakthrough lowered the chance of the U.K. leaving the EU without a trade deal in hand.

Analysts still say there are few obstacles left before the agreement is ratified. It’s still unclear if Johnson’s proposal will pass in Parliament under the opposition from Northern Ireland’s Democratic Unionist Party.

The U.K. 10-year government bond yield was up 2.8 basis points to 0.721%, Tradeweb data show.

Stock-market futures for the Dow Jones Industrial Average DJIA, -0.08% and the S&P 500 index SPX, -0.20%  showed Wall Street was headed for a higher open.

Investors will handle a raft of U.S. economic data also. Weekly U.S. jobless claims, September’s housing starts, and building permits numbers for last month are all due at 8:30 a.m. Eastern, followed by last month’s industrial production figures at 9:15 a.m.

Several Federal Reserve officials could also give clues to the outlook for another rate cut before the end of the year. Fed Gov. Michelle Bowman is due to speak at 2 p.m., and New York Fed President John Williams at 4:20 p.m.

What did market participants’ say?

“A Brexit deal could still have considerable headwinds within U.K. Parliament. Headline risk will certainly be front and center,” wrote Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.

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