Treasury yields saw muted trade Friday as fears over the Turkish lira’s decline were offset by reports that Washington and Beijing were laying the groundwork for possibly ending their protracted trade dispute by November. However, for the week, yields edged higher across debt maturities as appetite for havens abated by the end of the 5-session stretch.
The yield for the benchmark 10-year note
TMUBMUSD10Y, -0.06%
was mostly flat at 2.873%, leaving its weeklong climb at 1.4 basis points. The 2-year note yield
TMUBMUSD02Y, -0.32%
was unchanged at 2.620%, but up 2 basis points for the week.
The 30-year bond rate
TMUBMUSD30Y, -0.28%
was down 0.3 basis point to 3.029%, trimming its weeklong advance to 1.1 basis points.
Bond prices move in the opposite direction of yields.
Hopes that Washington and Beijing may resolve their trade spat surged after reports said China would send a delegation to the U.S. later in August for further talks, easing demand for haven-related assets like U.S. government paper. The two largest economies in the world are creating a plan to end their dispute by November.
“The Treasury market responded positively to the meltdown in Turkey but retreated little on the news that the U.S. and China were resuming trade talks…The fact that U.S.-China talks are on again is a potentially encouraging sign that the escalation of tensions will not be prolonged or hyperbolic, and increases the chance that the trade tensions eventually result in a trade agreement,” wrote Ward McCarthy, chief financial economist for Jefferies.
However, the bond market continued to benefit from the rapid depreciation of the Turkish lira
USDTRY, +3.6964%
after the troubled currency snapped its three-day rebound to slump more than 3% against the dollar. Fears that the currency could continue to weaken have drawn talk of contagion, pushing investors into haven assets like Treasurys. On Thursday, the U.S. warned it would prepare further sanctions against Turkey if U.S. pastor Andrew Brunson wasn’t released.
Although only a small corner of the global economy, Turkey is in the throes of a currency crisis that has inflicted rapid inflation on its citizens and ramped up the cost of debt service for its corporations, many of whom had borrowed freely in dollars and euros.
The country’s finance minister Berat Albayrak hosted a news call on Thursday in an attempt to reassure investors. He promised that capital controls weren’t to be on their way, refuting concerns market participants would struggle to cash out their investments and take their money out of the country’s borders. But economists say the Turkish central bank’s reluctance to raise interest rates mean the underlying policy problems remain unresolved.
See: Investors are using alternative strategies to wager against Turkish lira
Read: It isn’t only Turkey—Asia is the ‘elephant in the room’ in excessive dollar debts
Looking ahead for next week, investors are gearing up for the Federal Reserve’s annual Jackson Hole symposium late next week where central bankers could discuss a potential of hot issues, including the terminal point of the Fed’s balance sheet reduction plan. Fed Chairman Jerome Powell’s speech will be about “monetary policy in a changing economy,” the central bank said Thursday.
The Fed’s latest meeting minutes are due to be released Wednesday, before the symposium’s start, and could shed light on the issue, as well. A few analysts have cited the Fed’s bond-buying and its bloated portfolio of securities for depressing U.S. long-term bond yields.
“The most interesting part of the minutes will be about the balance sheet outlook. Unfortunately, recent speeches by FOMC members suggest that there is not yet a strong consensus, so we think at most we will see the various options being laid out,” said Tom Porcelli, chief U.S. economist at RBC Capital Markets, in a Friday research note.
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Source : MTV
