U.S. Treasury prices rose Wednesday, nudging yields lower, as U.S. stocks continued to demonstrate signs of weakness amid persistent worries about corporate earnings and the outlook for the U.S. and global economy.
Those worries were creating an ideal environment for bonds to rally weeks after long-dated yields were near multiyear highs.
What are yields doing?
The yield on the 10-year Treasury note
TMUBMUSD10Y, -2.02%
fell 4.2 basis points to 3.122%, its lowest since Oct. 2, while the 2-year Treasury note yield
TMUBMUSD02Y, -1.80%
shed 2.2 basis points to 2.855%. The 30-year Treasury bond yield
TMUBMUSD30Y, -0.92%
fell 2.1 basis points to 3.342%, according to Dow Jones Market Data.
Yields and debt prices move in opposite directions.
What’s driving the market?
U.S. government bonds have been rallying against the backdrop of worries about China’s economic vitality and a lackluster outlook for U.S. corporate earnings. A tit-for-tat spat between Beijing and the U.S. also has added to worries that tariff disputes will eventually result in significant harm to the economies and markets of the two largest global powerhouses. U.S. equity benchmarks remained on the back foot, with the S&P on track to log its sixth straight losing session.
The Nasdaq Composite
DJIA, -2.41%
was down more than 3%, and the S&P 500 index
SPX, -3.09%
fell 2.3% on Wednesday.
See: Here’s why trade-war jitters are putting a lid on U.S. bond yields
Investors also watched a tepid $39 billion sale of 5-year Treasury notes to glean clues on appetite for government paper. But analysts advised taking the auction’s results with a grain of salt. Bond yields didn’t rise after the debt sale, underscoring the strong demand for government bonds among investors seeking havens from market volatility.
Separately, an anecdotal account of the economic conditions in the Fed’s districts, known as the Beige Book, reported broad-based wage gains amid tight labor markets.
Bond traders also digested comments from President Donald Trump, who leveled more criticism at Federal Reserve Chairman Jerome Powell and the central bank’s gradual tightening of monetary policy in an interview with The Wall Street Journal. “Every time we do something great, he raises interest rates,” Trump said in the interview. The central bank has raised interest rates thrice this year and is expected to do so once more in December.
Meanwhile, Italy’s budget conflict with the European Union and Britain’s attempts to exit from the EU also have fueled bond buying in recent trade.
On Tuesday, the European Commission rejected Italy’s proposed 2019 budget, a move that threatens to heighten a dispute between leaders of the trade bloc and Italy’s populist government.
What are analysts saying?
“We came in with equities trading a bit soft, and it seems like Treasurys are very well-supported. We did have a soft five-year auction, and rates didn’t back up materially. What it does suggest with the risk-off backdrop, there’s enough demand for safe haven assets,” said Gennadiy Goldberg, rates strategist at TD Securities.
What’s on the economic calendar
- New home sales for September came in at an annualized 553,000, well below the consensus estimate of 620,000 from economists surveyed by MarketWatch.
- Among Fed speakers, Cleveland Fed President Loretta Mester said the central bank would not tweak its policy stance after recent market downturns, although she conceded a “prolonged” slump could weigh on the economy. Federal Reserve Board Gov. Lael Brainard is slated to talk at a 7 p.m.
Source : MTV
