Here’s Where the 10-Year Treasury Yield is Headed in 2020 as Brexit and U.S.-China Trade Headwinds Clear Away

Should investors jump back on the “reflation” train?

That’s a question many have started to ask as two major sources of uncertainty which have long kept investors on edge in 2019 appear to be clearing away this week, smoothing the runway towards higher long-term government bond yields next year.

With a U.S. – China phase one trade deal agreed and the U.K. Conservative Party sweeping to a landslide victory, the geopolitical headwinds may be fading, meaning demand for safe haven long-term government bonds may wane also.

“We are beginning to chip away at the fear-inducing issues. Brexit is no longer a big confidence crusher, and trade is slowly going away as a worry,” said Michael Kelly, global head of multi-asset for PineBridge Investments.

See: Phase 1 of U.S.-China talks was hard — and the next part will be even harder

Key to a bond-market selloff and rising yields in the new year is the detail and enforcement of the phase one trade agreement this week between the U.S. and China, though at least for now the world’s two largest economic powers are both looking to avoid a further escalation in tensions. That could help restart global capital investment spending, a boon for stocks and a danger for bonds, wrote Dario Perkins, head of global macro strategy at TS Lombard.