Bond Report: Treasury yields edge lower as traders await first debt auction of week

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U.S. Treasury yields fall Tuesday ahead of the first debt auction of the week as fixed-income traders closely eyed a vote on U.K. Prime Minister Boris Johnson’s Brexit deal.

What are Treasurys doing?

The 10-year Treasury yield TMUBMUSD10Y, -1.65% was down 1.2 basis points to 1.780%, after hitting a more than four-week high on Monday, while the 2-year note rate TMUBMUSD02Y, -1.51% fell 1.4 basis points to 1.601%. The 30-year bond yield TMUBMUSD30Y, -1.24% was down 0.8 basis point to 2.276%.

What’s driving Treasurys?

U.K’s Parliament will vote on whether lawmakers agree on principle with U.K. Prime Minister Boris Johnson’s Brexit deal as he looks to ratify his proposal before Oct. 31. Even if Johnson’s plan gets approved the vote, analysts say there remains opportunities for opposition lawmakers to scupper his tentative agreement.

Either way, investors say the probability of a no-deal Brexit has dimmed, soothing a longstanding source of geopolitical concerns that has driven investors into government bonds.

In economic data, existing-home sales for September are due at 10 a.m. Eastern. MarketWatch-polled analysts expect sales to run at an annual pace of 703,000.

Separately, the Treasury Department will auction $40 billion of 2-year notes on 1 p.m. at Tuesday, amid worries that primary dealers’ balance sheets are bloated with government paper.

To take down the U.S. government’s rising debt issuance, market participants said some dealers may have been unwilling to use their reserves at the Federal Reserve to finance the purchases and instead used funds from the so-called repo market. This exacerbated the demand for cash and added to the strains in markets for short-term borrowing that had flared up earlier in September.

What did market participants’ say?

“Brexit approval by Parliament is once again front and center,” said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.

“Equities are treading water ahead of the U.K. Parliament drama. Many feel this vote will not end well hence the “risk-off” move we are seeing,” said di Galoma.

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