Bond Report: 10-year Treasury yield ducks below 0.60% as U.S.-China tensions flare up

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U.S. Treasury yields fell slightly early Wednesday’s trade after the U.S. ordered China to close its consulate in Houston, exacerbating tensions between the two world’s largest economies.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 0.587% was down 1.5 basis points to 0.592%, while the 2-year note rate TMUBMUSD02Y, 0.141% was at 0.145%. The 30-year bond yield TMUBMUSD30Y, 1.286% slipped 2.1 basis points to 1.292%. Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

The U.S. State Department told China to close its consulate in Houston “to protect American intellectual property” and Americans’s private information. The Chinese Foreign Ministry spokesperson said this represented an “unprecedented escalation,” and pledged to retaliate if the U.S. continued to take the “wrong path.”

Futures for the S&P 500 SPX, +0.16% and Dow Jones Industrial Average DJIA, +0.59% swooned after the developments, bolstering demand for government bonds.

See: China says its Consulate General in Houston has been ordered shut

In economic data, U.S. existing home sales in June is forecast to rise to an annualized pace of 4.87 million, from a 3.91 million pace in May.

On the coronavirus front, Texas and Florida reported a record increase in average daily new deaths, raising worries the economic recovery in the two large regional economies will stall if the disease does not come under control.

The U.S. Treasury will auction $17 billion of 20-year bonds this afternoon. The influx of supply can weigh on trading for long-dated government paper, but the rapid increase in new issuance due to increased fiscal spending hasn’t deterred appetite for Treasurys.

What did market participants’ say?

“Treasuries were initially fairly quiet overnight until the headlines surrounding the abrupt closure of the Chinese Consulate in Houston at the request of the U.S.,” said Justin Lederer, an interest-rate strategist at Cantor Fitzgerald.