Treasury Yields Fall as Trump Impeachment Inquiry Stays in the Spotlight

U.S. Treasury yields fell on Thursday as geopolitical jitters from Washington boosted demand for haven assets like U.S. government paper.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -2.64%  fell 4.8 basis points to 1.684%, while the 2-year note rate TMUBMUSD02Y, -1.40%   was down 4.9 basis points to 1.634%. The 30-year bond yield TMUBMUSD30Y, -2.29%  tumbled 5 basis points to 2.133%.

What’s driving Treasurys?

Investors said they would keep a close watch of resurfacing geopolitical concerns after U.S. House Democrats endorsed an impeachment inquiry into President Donald Trump. It’s not clear, however, if the proceedings will make much headway in a Republican-dominated Senate. The whistleblower complaint that had sparked political uncertainty in Washington was released on Thursday morning.

U.S.-Iran tensions and the possibility of a no-deal Brexit have also kept market participants on edge.

The U.S. Treasury Department will auction off $32 billion of 7-year notes later at 1 p.m. The extra issuance to fund a rapidly widening U.S. fiscal deficit has been partly blamed for liquidity problems in money markets in the past couple of weeks.

As for the Federal Reserve, Fed Vice President Richard Clarida is set to speak at 11:45 a.m. Other senior Fed officials slated to give remarks on Thursday include Minneapolis Fed President Neel Kashkari and Richmond Fed President Thomas Barkin.

Investors remain undecided if the Fed’s two interest rate cuts so far this year will be enough to stave off the market’s fears of a recession, exemplified by a Treasury yield curve that is inverted on some measures. A negative spread between short-term and long-term yields can indicate when monetary policy is too constraining for the economy.

Elsewhere, Sabine Lautenschläger, a member of the European Central Bank’s Executive Board, announced she would resign prematurely, with her term set to end in 2022. Some say her departure may be a protest against the ECB’s decision to resume bond purchases, after the central bank launched a raft of stimulus measures in September.

In economic data, the revised second-quarter U.S. gross domestic product grew by 2%. Meanwhile, the trade deficit widened slightly to $72.8 billion in August, from $72.3 billion in the previous month. Pending home sales increase 1.6% last month.

What did market participants’ say?

“There’s a fair amount of uncertainty. Some of that’s around trade, and some of that is exacerbated by the announcement of the impeachment inquiry,” Gregory Faranello, head of U.S. rates at AmeriVet Securities, told MarketWatch.

“When you look at the market in general, at least in the 10-year yield, we’re trading in a short-term range,” said Faranello.

By: Sunny Oh