Bond Report: Treasury yields jump as S&P 500 hits record high

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U.S. Treasury yields rose Monday after stock-market gauges hit fresh highs on a combination of waning geopolitical and trade fears, drawing investors away from haven assets into those perceived as risky.

Investors will also focus on the coming midweek Federal Reserve meeting that is widely expected to deliver a quarter point cut.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +2.95% rose 4.6 basis points to 1.847%, while the 2-year note rate TMUBMUSD02Y, +0.98% was up 2.2 basis points to 1.648%. The 30-year bond yield TMUBMUSD30Y, +2.23% climbed 4.5 basis points to 2.338%. Bond prices move inversely to yields.

What’s driving Treasurys?

Demand for haven assets lifted after longstanding sources of geopolitical and trade uncertainty appeared to wane or were postponed. EU leaders agreed to extend the Brexit deadline from Oct. 31 to Jan. 3. As a result, the U.K. won’t crash out of the economic bloc on Thursday. British lawmakers will now vote on whether to hold an early general election on Dec. 12.

Over the weekend, news reports said that Beijing had agreed to sections of text for the so-called Phase 1 trade deal, in which the U.S. will cancel tariffs on Chinese imports in return for promises by China to buy U.S. agricultural goods.

The S&P 500 SPX, +0.58% rose 0.6% to set a fresh intraday record Monday, surpassing the previous intraday high of 3,027.98 hit on July 26.

Market participants are now gearing up for the Federal Open Market Committee’s meeting for the Oct. 29-30, amid expectations for the U.S. central bank to lower rates for a third time this year. The meeting could underline divisions within the Fed’s policy-making group against a similarly conflicted backdrop of weakening global growth but fading trade concerns.

See: Why would the Fed cut interest rates a 3rd time in a row even as stocks near records? Investors may soon find out

Read: Three things to watch when the Fed meets next week

In economic data, the U.S. trade deficit in September came in at $70.4 billion, below the $73.7 billion expected by economists polled by MarketWatch, and below the August level of $72.8 billion.

The Chicago Fed National Activity Index fell to -0.45 in September from 0.15 In August, suggesting below-trend economic growth in the U.S.

What did market participants’ say?

“Treasurys enter a pivotal week of information this week with all the usual top tier data as well as the FOMC meeting on Wednesday. Markets have nearly fully priced in a rate cut for Wednesday’s meeting, but little in the way of cuts beyond that,” wrote analysts at NatWest Markets.

“Clearly the month’s trade developments and positive Brexit news has helped adjust market concerns about the downside tail risks for both of those going forward,” they said.

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