Bond Report: U.S. Treasury yields rising ahead of resumption of U.S.-China trade talks later this week

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Treasury yields were on the rise Monday as traders awaited the resumption of U.S.-China trade talks set for later this week as both countries grapple with the protracted trade dispute and signs that both nation’s economies are sputtering.

Government bond yields slumped last week after a raft of weaker-than-expected surveys of the manufacturing and services sector boosted hopes that the U.S. central bank would cut interest rates again in October.

On tap today, investors will get a consumer credit report for August at 3 p.m. Eastern and U.S. Treasury bill auctions of 13-week bills and 26-week bills.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +0.95%, rose 1.5 basis points to 1.537%. The 2-year note yield, TMUBMUSD02Y, +2.00%, sensitive to expectations for interest-rate policy, was up 1.2 basis points to 1.411%. The 30-year bond yield TMUBMUSD30Y, +1.13%, rose 1.8 basis points to 2.036%.

Yields on bonds move in the opposite direction as price.

What’s driving the market?

The market is eager for signs of progress on the U.S.-China trade front, which has put downward pressure on the economies of the world’s two-largest trading partners.

But U.S. stock futures were trading lower on Monday morning, after Bloomberg News on Sunday said Vice Premier Liu He, President Xi Jinping’s No. 2, would arrive for discussions in Washington with terms for a deal that won’t include “commitments on reforming Chinese industrial policy” or “government subsidies.”

On the U.S. front, Friday’s job report showed that while the U.S. unemployment rate fell to a 50-year low of 3.5%, wages only bumped up only 2.9%, their weakest gain in more than a year, which could rattle consumers, a core driver of the American economy.

Check out: European stocks turn higher as Wall Street open approaches

What are market participants saying?

This week’s biggest risk event is the return of U.S.-China trade negotiations on Thursday and Friday, wrote Hussein Sayed, chief market strategist at FXTM. “There’s no doubt that concerns over the outlook of global economic growth have severely intensified over the past couple of months due to the U.S.-China trade dispute,” he wrote in a daily client note.

“President Trump may be willing to accept an amended deal to avoid a further selloff on Wall Street, especially with the ongoing impeachment inquiry. However, it remains unclear whether the Chinese will provide concessions on industrial policies or government subsidies, which have been a critical demand for the U.S. administration.”