BOND REPORT: Treasury Yields Edge Lower As Traders Await Weekend Vote On Brexit

By Sunny Oh

Fed's Clarida says economy still facing risks, inflation muted

U.S. Treasury yields were mostly lower on Friday as investors eyed developments on Brexit ahead of Parliament's vote on the weekend.

What are Treasurys doing?

The 10-year Treasury note yield fell a basis point to 1.747%, but was virtually unchanged for the week. The 2-year note rate fell 3.1 basis points to 1.573%, contributing to a 3.6 basis point drop this week. The 30-year bond yield was flat at 2.243%, but up 3.3% for the week.

What's driving Treasurys?

Market participants said they were awaiting the U.K.'s Parliament vote on U.K. Prime Minister Boris Johnson's proposal at Saturday. Optimism initially surrounded Johnson's deal after European Union officials backed the agreement, but a lack of support from Northern Ireland's Democratic Unionist Party has weighed on the likelihood of the bill's ratification.

See: What a Brexit deal would mean for U.S. stocks and global investors (http://www.marketwatch.com/story/what-a-brexit-deal-would-mean-for-us-stocks-and-global-investors-2019-10-17)

In economic news, China's National Bureau of Statistics said growth of the world's second-largest economy slowed to 6% growth (http://www.marketwatch.com/story/chinas-economic-growth-continues-to-cool-off-2019-10-17) in the third quarter from a 6.2% pace in the second quarter, and the slowest pace since the early 1990s, reflecting the impact of the U.S. - China trade dispute and slowing world growth also.

Traders also monitored several speeches by senior Federal Reserve officials. Fed Vice Chairman Richard Clarida said (http://www.marketwatch.com/story/feds-clarida-says-economy-facing-risks-while-inflation-remains-muted-2019-10-18)the economy was still facing risks, and that inflation was muted. But he did not comment on the outlook for interest rates at the upcoming Oct. 29-30 meeting.

In money markets, New York Fed President John Williams said late Thursday (http://www.marketwatch.com/story/feds-williams-says-central-bank-would-adjust-plan-to-soothe-funding-markets-as-appropriate-2019-10-17)that the central bank was closely monitoring its measures to soothe pressures in funding markets, and could adjust its plans. Since funding markets seized up last month, the U.S. central bank has regularly intervened to provide liquidity, offering daily repurchasing agreements to lend out funds to market participants thirsty for cash and announcing $60 billion of bill purchases at least through the second half of 2020.

Federal Reserve officials are heading into their meeting in two weeks likely to cut interest rates while debating whether they have done enough for now to vaccinate the economy against growing risks of a sharper slowdown, the Wall Street Journal reported (https://www.wsj.com/articles/fed-eyes-another-rate-cut-weighs-when-to-stop-11571391003?mod=hp_lead_pos7).

What did market participants' say?

"Even if we do not know what the ramifications will be should Brexit occur, the existence of a deal agreed upon by Europe and the UK removes some of the questions from the past 2.5 years. Investors will be watching Parliament for signs the current deal will pass," wrote Jody Lurie, an analyst at Janney Montgomery Scott.

(END) Dow Jones Newswires

October 18, 2019 15:47 ET (19:47 GMT)

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