TREASURIES – U.S. Bond Yields Rise on U.S.-China’s Trade Truce

U.S. Treasury yields rose on Monday as China and the United States’ agreement to restart trade talks caused investors to pare their safe-haven holdings of bonds, although the selling was limited by worries about global economic growth.

Investors had piled into U.S. government debt and other perceived low-risk assets on fears about a further escalation in trade tensions between the world’s biggest economies after a G20 summit in Osaka, Japan this weekend.

But Washington and Beijing agreed to renegotiate after U.S. President Donald Trump offered concessions, including no new tariffs and an easing of restrictions on tech company Huawei, while China approved making unspecified new purchases of U.S. farm products.

“What is a truce for now represents to us more sentiment than anything else,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities.

With U.S.-China trade talks seemingly back on track, there were lowered expectations the Federal Reserve would embark on an aggressive half a point rate cut at its next policy meeting on July 30-31, though traders still anticipate a more modest quarter point decrease, analysts said.

The view on a possible Fed rate cut was supported by disappointing factory data in Asia and Europe.

“The market wants a rate cut,” Faranello said. “Bottom line, this is what we are priced for and the Fed certainly has a role in current market expectations.”

At 9:43 a.m. (1343 GMT), benchmark 10-year Treasury yields were up 1.20 basis point at 2.012%, while two-year yields were 2.20 basis points higher at 1.763%.

July 1 Monday 9:42AM EDT/ 1342 GMT
                               Price                   
 US T BONDS SEP9               155-15/32    -0-4/32    
 10YR TNotes SEP9              127-232/256  -0-16/256  
                               Price        Current    Net
                                            Yield %    Change
                                                       (bps)
 Three-month bills             2.0725       2.1175     0.018
 Six-month bills               2.055        2.1106     0.016
 Two-year note                 99-190/256   1.7571     0.016
 Three-year note               100-28/256   1.7117     0.014
 Five-year note                99-236/256   1.7664     0.009
 Seven-year note               99-252/256   1.8774     0.009
 10-year note                  103-60/256   2.0119     0.012
 30-year bond                  107-4/256    2.5384     0.012
                                                       
   DOLLAR SWAP SPREADS                                 
                               Last (bps)   Net        
                                            Change     
                                            (bps)      
 U.S. 2-year dollar swap         5.50         0.25     
 spread                                                
 U.S. 3-year dollar swap         3.75         0.50     
 spread                                                
 U.S. 5-year dollar swap         0.25         1.00     
 spread                                                
 U.S. 10-year dollar swap       -4.25         0.50     
 spread                                                
 U.S. 30-year dollar swap      -31.50         0.50     
 spread      

(Reporting by Richard Leong; editing by Jonathan Oatis)

Published on July 1, 2019 by Richard Leong

https://www.reuters.com/article/usa-bonds/treasuries-u-s-bond-yields-rise-on-u-s-chinas-trade-truce-idUSL2N2420FI

https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=201907011231RTRSNEWSCOMBINED_L2N2420OL_1