Bond Report: 10-year Treasury yield at four-month high as bond selloff extends

This post was originally published on this site

U.S. Treasury yields rose Thursday as bond-market traders shied away from longer-term government debt, in the wake of a preliminary trade deal that has helped lift investor sentiment for risk assets at the expense of safe havens assets.

What are Treasurys doing?

The 10-year Treasury yield TMUBMUSD10Y, +0.37%   was up 2.3 basis points to 1.947%, around its highest levels since early August, while the 2-year note rate TMUBMUSD02Y, -0.49%   was up 1.4 basis points to 1.647%. The 30-year bond yield TMUBMUSD30Y, +0.42%   rose 2.5 basis points to 2.376%.

What’s driving Treasurys?

The positive mood in economic sentiment and the run-up in risk asset prices after the announcement of a U.S. – China trade deal last week continued to dampen prices for government paper. The House of Representatives are also expected to approve the USMCA trade pact, a revamp of the Nafta agreement, this week.

Investors will also watch U.S. economic data, with November’s existing home sales numbers and The Conference Board’s Leading Economic Index for last month due at 10 a.m. ET.

U.S. jobless claims fell back in mid-December after a post-Thanksgiving holiday surge, returning closer to the extremely low level of layoffs that has prevailed over the past few years and the Philadelphia Fed manufacturing index slumped to 0.3 in December, from 10.4 in the previous month.

An auction for $15 billion of Treasury inflation-protected securities (TIPs) at 1 p.m. ET will draw some interest. The 5-year breakeven inflation rate, or the implied market-based inflation forecast from trading in the 5-year TIPs note, stood around a seven-month high of 1.65% as of Tuesday.

Institutional investors like Vanguard have recently suggested inflation expectations may be underpriced especially after Federal Reserve Chairman Jerome Powell lifted the bar for contemplating an interest-rate increase at the last Fed meeting of 2020.

Central banks were also in focus on Thursday as the Bank of England and the Bank of Japan both voted to keep interest rates unchanged at their central bank meetings. The BOJ statement said the risk of an overseas slowdown weighing on domestic demand was “expected to be limited.”

One of the few central banks paring back their monetary accommodative policies, Sweden’s Riksbank raised its benchmark short-term interest rate to zero, pulling it out of negative territory for the first time in five years.

What did market participants’ say?

“Risk assets may continue to drift higher into year-end given supportive central banks, and we do not expect Treasuries to be able to drift much higher in yield, given Powell’s stance that the fed funds rate will not rise unless there is a persistent rise in inflation,” wrote analysts at NatWest Markets.

Add Comment