Bond Report: Treasury yields edge lower after hopes for immediate Brexit breakthrough wane

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U.S. Treasury yields fell early Wednesday as the chance of a Brexit deal being ratified before the end of October dimmed, drawing investors into haven assets like U.S. government paper.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -1.68%   was down 2.5 basis points to 1.741%, while the 2-year note rate TMUBMUSD02Y, -2.03%   fell 2.9 basis points to 1.562%. The 30-year bond yield TMUBMUSD30Y, -1.23%   edged lower by 1.8 basis points to 2.233%.

What’s driving Treasurys?

In recent days, Treasury markets have moved on developments around the U.K.’s attempts to break away from the European Union, a source of geopolitical concerns that have rattled investors in the last few years.

U.K.’s Prime Minister Boris Johnson said he may push for a general election, if the EU agreed to extend the deadline for the U.K. to leave the economic bloc. This comes after lawmakers rejected the short timetable for Johnson’s proposals on Tuesday, making it unlikely that he would be able to push for a deal before the end of Oct. 31.

The Treasury Department will sell $41 billion of 5-year notes at 1 p.m. Eastern. Trading for government paper can be influenced by the introduction of fresh debt issuance into the outstanding market.

Analysts say there could be less interest among buyers in this week’s round of debt auctions ahead of the Federal Reserve’s meeting next week where it is expected to cut interest rates by another quarter percentage point, a move which is likely to push short-term rates lower.

What did market participants’ say?

“The question is whether PM Johnson is confident he can deliver an exit in a matter of weeks. If not, he may prefer a general election but this requires the support of two thirds of MPs, or losing a motion of no-confidence triggered by the opposition,” said Kenneth Broux, a strategist at Société Générale.

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