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Treasury Yields Rise Most in Two Weeks on Tentative Trade Optimism

U.S. Treasury yields edged up Thursday, reversing some of this week’s decline, after a report said Beijing was pushing to advance talks on a partial trade deal with the U.S.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 0.617% rose 3.4 basis points to 1.771%, while the 2-year note rate TMUBMUSD02Y, 0.220% ticked higher by 3.1 basis points to 1.603%. The 30-year bond yield TMUBMUSD30Y, 1.198% was up 2.8 basis points to 2.231%. Rates for all three maturities saw their biggest daily rise since Nov. 7.

What’s driving Treasurys?

Bond-markets came under pressure after Beijing pushed for a phase one trade deal, inviting U.S. trade negotiators for face to face talks in China, according to the Wall Street Journal. On Wednesday reports had suggested the limited trade agreement may have to wait until next year before it is completed.

However, the South China Morning Post reported that the U.S. Congress’s legislation in support of pro-democracy protesters in Hong Kong could undermine trade talks, citing people familiar with the negotiations.

Analysts say negotiations have stalled over several sticking points, including the level of Chinese agricultural purchases of U.S. farm goods and the extent of tariff rollbacks as part of the deal.

In U.S. economic data, the U.S. Conference Board’s index of leading indicators fell for a third straight month, adding more evidence of slowing economy. Weekly jobless claims, meanwhile, were little changed at 227,000, reflecting an employment market that remains healthy..

“You can’t have a recession without job losses so the million dollar question is whether first time claims for jobless benefits will come back down over the next few weeks,” wrote Chris Rupkey, chief financial economist at MUFG.

As for the Federal Reserve, Minneapolis Fed President Neel Kashkari said he wasn’t expecting a recession, and that strong consumption and wage gains would support the economy.

What did market participants say?

“We do have some tricky dynamics that are playing into the market, most of it related to the phase one deal,”  Gregory Faranello, head of U.S. rates at AmeriVet Securities, told MarketWatch. “The Treasurys market has been hedging with regards to global trade this week, though today is a bit more noise. What will be important even if a deal gets delayed is that both sides continue to speak.”

By: Sunny Oh