Global bond yields rose on Tuesday as hopes for a partial U.S – China trade deal dampened demand for government paper in the U.S., Europe and Japan.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, +4.58% surged 7.4 basis points to 1.862%, while the 2-year note rate TMUBMUSD02Y, +2.80% was up 3.7 basis points to 1.631%. The 30-year bond yield TMUBMUSD30Y, +3.47% climbed 7.1 basis points to 2.344%.
What’s driving Treasurys?
The Wall Street Journal and other media said the White House was considering rolling back some existing tariffs on $111 billion of Chinese imports that had been imposed on Sept. 1 in order to finalize the so-called phase one deal. Originally, the deal was only expected to prevent the imposition of additional tariffs set to kick in at mid-December.
The positive trade developments spurred selling in overseas bond markets also. The 10-year Japanese government bond yield TMBMKJP-10Y, +25.49% jumped 6.3 basis points to negative 0.117%. while the 10-year German government bond yield TMBMKDE-10Y, +11.79% was up 3.9 basis points to negative 0.312%, Tradeweb data show.
U.S. economic data also undermined safe-haven demand, with the Institute of Supply Management’s U.S. service sector activity index rose to 54.7% in October, up from 52.6% in September. Any reading above 50 indicates improving conditions.
An auction for $38 billion of U.S. Treasury 3-year notes drew solid demand after the bond-market selloff helped push yields to more attractive levels for income-hungry investors. The Treasury Department said because the 3-year notes sold at an interest rate and maturity matching an issue of a 10-year note, it would be considered a reopening of the 10-year note.
Investors also watched several speeches from senior Federal Reserve officials throughout the session. Richmond Fed President Thomas Barkin said a recession was not imminent.
What did market participants’ say?
“Trade progress via the US and China being said to consider partial tariff rollbacks, coupled with most recent top-tier data prints coming in stronger than consensus paints a textbook picture for higher rates and equities as near-term recessionary fears moderate,” said Jon Hill, an interest-rate strategist at BMO Capital Markets, in a research note.