Bond Report: Treasury yields tumble after Brexit deal draws skepticism

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U.S. Treasury yields fell on Wednesday after comments from European leaders raised uncertainty that a deal for the U.K. to leave the European Union could be struck before the end of October.

What are Treasurys doing

The 10-year Treasury note yield TMUBMUSD10Y, -1.97%   slipped 3.6 basis points to 1.733%. The 2-year note rate TMUBMUSD02Y, -1.25%   was down 2.8 basis points to 1.594%, while the 30-year bond yield TMUBMUSD30Y, -1.02%   edged lower by 1.7 basis points to 2.213%.

What’s driving Treasurys?

Government bonds rallied as the prospect of a Brexit deal came under question, reversing the selloff in Treasurys seen on Tuesday. Bloomberg News reported an EU official said a Brexit agreement would be impossible without further concessions from the U.K. Northern Ireland’s Democratic Unionist Party also raised objections to U.K. Prime Minister Boris Johnson’s proposal.

Talks on Brexit are likely to now run into the European Summit starting on Thursday. Still, Michel Barnier, the EU’s top negotiator, said he remained optimistic on an agreement.

The 10-year yield for the U.K. government bond, or gilts, TMBMKDE-10Y, -0.75%   fell 4.5 basis points to 0.661%.

Investors will look forward to U.S. economic data, including an update of consumer spending. Retail sales figures for September will be due at 8:30 a.m. Eastern, and is expected by MarketWatch polled economists to increase by 0.3%. The Home Builders’ index for October will later be released at 10 a.m., followed by the Federal Reserve’s Beige Book at 2 p.m.

A few central bank officials are set to speak on Wednesday, including Chicago Fed President Charles Evans at 10:45 a.m. and Fed Gov. Lael Brainard at 3 p.m.

What did market participants’ say?

“Optimism that a Brexit deal is in the grasp of U.K. and EU negotiators was called premature by EU diplomats overnight so it will be tense finale with more twists and turns no doubt on what should be the final day of negotiations in Brussels before the summit tomorrow,” wrote Kenneth Broux, a strategist at Société Générale.

See also: European stocks slip on pessimism over Brexit deal and U.S.-China tensions