Bond Report: Treasury yields fall after reports say U.S.-China trade meeting postponed

This post was originally published on this site

U.S. Treasury yields slipped on Tuesday after reports said that a meeting between President Donald Trump and Chinese President Xi Jinping could be delayed until December, suggesting investors may have to wait longer for Washington and Beijing to sign off on a partial trade deal.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -2.52%  fell 5.1 basis points to 1.814%, while the 2-year note rate TMUBMUSD02Y, -1.47%  retreated by 2.6 basis points to 1.607%. The 30-year bond yield TMUBMUSD30Y, -1.85%  slipped 5 basis points to 2.297%.

What’s driving Treasurys?

The recent bond-market selloff took a respite Wednesday as market participants continued to monitor developments on the international trade front. Reuters reported the meeting between Trump and Xi could be postponed to the end of the year as both sides extend discussions over the terms of the phase-1 trade agreement and the venue for their get-together, citing a senior Trump administration official.

News reports on Monday said Beijing was pushing the White House to remove existing tariffs on more than a $100 billion of Chinese imports imposed in September. The South China Morning Post reported that “firmer commitments on lifting tariffs” were needed for a Chinese trade delegation to sign off on the deal in the U.S, citing a source familiar with government discussions.

Investors also digested speeches from key Federal Reserve officials. Chicago Fed President Charles Evans said the U.S. economy was in a “good place,” but added that the central bank may have to respond if there was a negative shock to growth. Meanwhile, New York Fed President John Williams said further interest rate cuts were not necessary for now.

The U.S. Treasury Department’s sale for $27 billion of 10-year notes “stopped through,” a sign of strong demand for the debt put on sale. A stop-through indicates when the highest yield the Treasury sold in the auction comes below the highest yield expected when the auction began – the “when issued” level.

In economic data, U.S. productivity fell by an annual rate of 0.3% in the third-quarter, its first drop since 2015 even as MarketWatch surveyed economists had forecast productivity to increase by 0.6%.

What did market participants’ say?

“Trade has dominated any fundamental developments in the U.S. economy,” said Michael Lorizio, senior fixed income trader at Manulife Asset Management, told MarketWatch. “In addition to fundamental concerns, trade talks being delayed won’t help rates move higher.”

“We’re also back in the running today with a nice auction. Despite the recent selloff, demand for Treasurys hasn’t completely gone away,” he said.