10-Year Treasury Yield Hits More Than Three-Week High on Prospect of Brexit Deal
U.S. Treasury yields rose Tuesday, putting government bonds under pressure, after reports suggested the U.K. was nearing a deal to leave the European Union, reducing geopolitical risk further after at least a truce in the U.S-China trade war last Friday.
How are Treasurys doing?
The 10-year Treasury note yieldÂ TMUBMUSD10Y,Â -2.04%Â Â rose 2.5 basis points to 1.773%, its highest since Sept. 19, while the 2-year note rateÂ TMUBMUSD02Y,Â -1.01%Â Â was up 1.3 basis points to 1.622%. The 30-year bond yieldÂ TMUBMUSD30Y,Â -1.51%Â Â ticked higher by 2.7 basis points to 2.238%, its highest since Sept. 17.
Whatâ€™s driving Treasurys?
The earlier bullish tone in Treasurys gave way to a selloffÂ after a report from BloombergÂ suggested the U.K. and the EU were close to reaching a draft Brexit agreement. Optimistic comments by Michel Barnier, the top EU negotiator, also helped to bolster hopes.
The 10-year U.K. government bond yieldÂ TMBMKGB-10Y,Â -4.87%Â Â rose 5.5 basis points to 0.694%, Tradeweb data show.
Investors initially dived into government paper on Tuesday after news reports said the so-called â€œphase 1â€ U.S.-China trade deal described by President Donald Trump was not finalized, and that Beijing wanted to iron out a few details before it committed to the agreement. It was the first chance for traders to assess the merits of Trumpâ€™s trade agreement after the weekend, with bond-markets closed on Monday in observance of the U.S. Columbus Day holiday.
However, investors also saw renewed signs of weakness in export-dependent Germany, the largest economy in the European Union. The German ZEW economic sentiment index fell to a reading of negative 22.8 points this month, from negative 22.5 points in September.Â Reuters reportedÂ the German government now expected gross domestic product to expand by a 1% pace next year, from 1.5% before, according to a source familiar with the matter.
And in itsÂ World Economic Outlook, published Tuesday, the IMF sees global economic growth falling to 3% this year, the slowest pace since the 2008 financial crisis.
St. Louis Fed President James Bullard, one of the most dovish members at the Fed,Â made the case in a speech in LondonÂ for further interest rate cuts to protect against downside risks but said the central bank will be cautious in making more rate cuts.
What did market participantsâ€™ say?
â€œIf you look at today, the gilt market is leading the way down. Thereâ€™s optimism in the way of trade and a potential deal on Brexit,â€ Gregory Faranello, head of U.S. rates strategy at AmeriVet Securities, told MarketWatch.
By: Sunny Oh