BOND REPORT: Two-year Treasury Yield Logs Biggest Daily Rise In Five Weeks After Signs Of Trade Progress
13 August 2019 - 8:51PM
Dow Jones News
By Sunny Oh
Hong Kong, Argentina still provide need for safe haven
assets
Short-term U.S. Treasury yields jumped on Tuesday after reports
of progress in U.S.-China trade negotiations sapped demand for safe
assets like bonds.
How are Treasurys doing?
The 10-year Treasury note yield rose 3.8 basis points to 1.678%,
marking its biggest daily rise since July 11. The 2-year note rate
surged 8.9 basis points to 1.667%, contributing to its sharpest
daily increase since July 5. The 30-year bond yield was flat at
2.131%.
A widely-watched gauge of the yield curve's slope, the spread
between the 2-year Treasury note yield and the 10-year note yield
narrowed to 2 basis points, its flattest level since 2007. A
flatter yield curve can indicate investor worries that monetary
policy remains too tight.
See: The 30-year Treasury bond yield is on the brink of falling
to an all-time low
(http://www.marketwatch.com/story/the-30-year-treasury-bond-yield-is-on-the-brink-of-falling-to-an-all-time-low-2019-08-12)
What's driving Treasurys?
The United States Trade Representative announced it would winnow
down the list of goods
(https://ustr.gov/about-us/policy-offices/press-office/press-releases/2019/august/ustr-announces-next-steps-proposed)
that are set to incur a 10% tariff on additional $300 billion of
Chinese imports publicized earlier in August 1. A USTR spokesman
said U.S. Trade Representative Robert Lighthizer and Treasury
Secretary Steven Mnuchin had talked with Chinese Vice Premier Liu
He over the phone.
"Certain products are being removed from the tariff list based
on health, safety, national security and other factors and will not
face additional tariffs of 10 percent," according to the statement.
"Further, as part of USTR's public comment and review process, it
was determined that the tariff should be delayed to December 15 for
certain articles."
The news of a de-escalation in the trade war overshadowed
concerns about slowing economic growth and the potential for
Beijing to crack down on protests in Hong Kong, one of Asia's most
important financial and trade hubs.
However, protests in the Asian financial center of Hong Kong
showed few signs of ending, underpinning demand for safe haven
bonds. Police clashed with demonstrators in Hong Kong International
Airport as departing flights were cancelled for a second day in a
row.
See: Protesters clog Hong Kong airport again after it reopens
(http://www.marketwatch.com/story/protesters-clog-hong-kong-airport-again-after-it-reopens-2019-08-13)
Investor confidence in Argentina was also shaken after
business-friendly Mauricio Macri President was defeated by populist
Alberto Fernández in primary elections on Monday, suggesting a
similar outcome in October's presidential vote. On Monday, the
Argentinian peso swooned 15% against the U.S. dollar and its stock
market saw a 31% drop.
Read: How Hong Kong clashes could wallop the U.S. stock market
(http://www.marketwatch.com/story/how-hong-kong-clashes-could-wallop-the-us-stock-market-2019-08-12)
In economic data, the U.S. consumer price index for July
increased by 0.3%. Its core gauge stripping out for energy and food
prices also rose by 0.3%, pushing its yearly growth up to 2.2%.
Analysts polled by MarketWatch had forecast core inflation to rise
by 0.2%.
Stronger inflationary pressures can weigh on the value of a
bond's fixed-income payments.
Check out: Higher gasoline prices, rent boost cost of living in
July, CPI shows, but inflation still mild
(http://www.marketwatch.com/story/higher-gas-prices-rent-boost-cost-of-living-in-july-cpi-shows-but-us-inflation-still-mild-2019-08-13)
What did market participants' say?
"There's no real change in view from us. We don't think you're
going to see a trade deal in the short-term horizon, we've seen
various constructive comments here and there before," said Scott
Kimball, fixed-income portfolio manager at BMO Global Asset
Management.
"The global economy is slowing and making the domestic economy
the best game in town. So we expect inflation to be stronger than
the current expectations that appear to be caused by overly
pessimistic expectations for the U.S. economy," wrote Bryce Doty,
portfolio manager for Sit Fixed Income.
(END) Dow Jones Newswires
August 13, 2019 15:36 ET (19:36 GMT)
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