Treasury prices rose on Wednesday, pushing yields lower, as Brexit uncertainty drew investors into haven assets, following reports that U.K. Prime Minister Theresa May is struggling to gather support for another vote on her thrice-rejected plan to leave the European Union.
What are Treasurys doing?
The 10-year Treasury note yield
TMUBMUSD10Y, +0.04%
slipped 3.5 basis points to 2.393%. The 30-year bond yield
TMUBMUSD30Y, -0.01%
retreated 2.5 basis points to 2.818%, its lowest level since March 29, while the 2-year note yield
TMUBMUSD02Y, +0.18%
fell 2.7 basis points to 2.231%. Bond prices move in the opposite direction of yields.
What’s driving Treasurys
Treasurys rallied along with British government bonds after reports that U.K. Prime Minister Theresa May was losing support from her cabinet and members of her own Conservative party, after she offered to put a second referendum on the table if Parliament voted for her deal.
Andrea Leadsom, the leader of the U.K. Parliament’s lower house, resigned on Wednesday. Leadsom has said she would not accept a Brexit plan that would leave the possibility of the U.K. staying in the EU’s customs union.
The 10-year yield for the U.K. government bond, or gilt,
TMBMKGB-10Y, +0.00%
retreated 7.4 basis points to 1.016%, marking its biggest daily drop since March 22, Tradeweb data show.
The minutes from the April 30-May 1 meeting of the rate-setting Federal Open Market Committee, the U.S. central bank’s rate-setting group, showed officials anticipated the Fed’s patient stance on interest rates to potentially last for “some time.” Some members of the FOMC said they expected subdued inflation to be transitory, but that if prices didn’t show signs of rising in the next few quarters, inflation expectations were at risk of staying stuck below 2%.
See:What’s next for the Fed? Wall Street to sift for clues in recap of last FOMC get-together
What did market participants say?
“If you look at the fed fund futures market, which is pricing cuts, a lot of that is predicated on current levels of inflation. The Fed is willing to exercise a lot more patience because they believe when inflation is above or below the target it’s transitory. They’re not ready to make a policy decision,” said Charlie Ripley, an investment strategist at Allianz Investment Management.
“If you think about the main areas of geopolitical risk, it’s really either Brexit topic or global trade. Any time that tensions flare up, we see a risk-off environment. That’s what is keeping the bond market anchored for the time being,” said Ripley.
What else is on investors’ radar?
Investors received an update on the outlook for the next round of trade negotiations. Treasury Secretary Steven Mnuchin said on Tuesda that President Donald Trump is likely to meet with President Xi Jinping at the end of June.
Several officials from the Federal Reserve gave speeches. St. Louis Fed President James Bullard said on Wednesday the central bank could cut its short-term interest rate to help achieve the Fed’s 2% inflation target. Boston Fed President Eric Rosengren said the central bank assumed the U.S. and China would strike a trade deal.
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Source : MTV
