Treasurys came under pressure, pushing long-dated yields to two-week peaks, on Tuesday amid reports that Germany was contemplating extending financial aid to Turkey, which is in the throes of currency crisis.
Ebbing trade concerns also helped to soften demand for U.S. government paper after President Donald Trump’s progress on a trade deal with Mexico.
The 10-year Treasury note yield
TMUBMUSD10Y, +1.25%
rose 3.6 basis points to 2.880%, while the 30-year bond rate
TMUBMUSD30Y, +1.23%
advanced 3.7 basis points to 3.033%. Both long-dated maturities were at their highest since Aug. 14. The 2-year note yield
TMUBMUSD02Y, +0.12%
was up by 2 basis points to 2.665%, its highest since Aug. 8, according to Dow Jones Market Data Group.
Bond prices move in the opposite direction of yields.
The Wall Street Journal reported that German policy makers were worried about knock-on effects from deterioration in Turkey’s economy, which could potentially ripple though the eurozone’s banking system. Germany is the most influential and largest economy within the eurozone.
The WSJ report indicated that German officials are in discussions with Turkish counterparts over the form any assistance might take, but discussions are in the very early stages, and the article cautioned that they may ultimately fall apart. After the report’s release, a government official told Reuters that Germany wouldn’t offer direct financial aid, and was considering alternatives.
Treasurys have drawn interest, capping expected yield gains from a Federal Reserve that has been steadily normalizing U.S. monetary policy. Demand for the perceived safety of Treasurys in that environment has held debt prices higher and yields lower, market participants said. Signs that Turkey’s crisis could be resolved could erode appetite for haven assets like Treasurys, and give long-dated yields the room to run higher.
Trade tensions also came into focus after President Donald Trump announced a preliminary trade agreement between the U.S. and Mexico. But analysts say it’s unclear whether Canada will join the deal, a sticking point for Congress, which is more likely to ratify a trilateral trade agreement, not a bilateral one.
Read: Trump deal with Mexico eases fears of trade wars, offers template to end other conflicts
“The 2-10 curve could become vulnerable to steepening if Canada joins U.S.-Mexico agreement to confirm a new less negative trade scenario,” wrote Arnim Holzer, portfolio manager at EAB Investment Group.
Trade-war fears have pushed investors into U.S. government paper, capping debt yields and flattening the yield curve. A climb in the benchmark 10-year note yield would help reverse that trend by widening the spread between the 2-year note and the 10-year note, a common gauge of the yield curve’s slope.
The trade deficit widened by more than $4 billion to $72.2 billion in July, weighing on third-quarter GDP estimates. That was offset by a jump in July’s wholesale inventories numbers by 0.7%. Consumer confidence climbed to 133.4 in August, an 18-year high, from 127.9 in the previous month.
“We’re going to see this growth momentum pick up, with the growth in employment and the rise in wages, and consumer confidence continuing to go strong. The general level of economic activity is going to move in the positive direction,” said Jim Sarni, a portfolio manager at Payden & Rygel.
Traders also digested an auction of $37 billion of 5-year notes, said analysts. So far, a ramp-up in debt supply by the Treasury Department, thanks to the fiscal stimulus measures introduced at the year’s start, have struggled to push up yields. The 5-year note yield
TMUBMUSD05Y, +1.12%
was up 2.7 basis points to 2.772%.
Source : MTV
