Haven demand pulls down Treasury yields as China sparks global stock-market selloff


U.S. Treasury prices rose Tuesday, pulling down yields, on an apparent flight to safety as a renewed Chinese stock market rout sparked global equity weakness.

What are yields doing?

The yield on the 10-year Treasury note

TMUBMUSD10Y, -2.21%

 fell 4.7 basis points to 3.141%, while the 2-year Treasury note yield

TMUBMUSD02Y, -1.29%

 declined 2.9 basis points to 2.867% and the 30-year Treasury bond yield

TMUBMUSD30Y, -1.99%

 fell 4.6 basis points to 3.335%. Yields and debt prices move in opposite directions.

What’s driving the market?

U.S. stock-index futures pointed to sharp losses for Wall Street, joining a global downturn sparked by heavy losses for Chinese shares, with the Shanghai Composite

SHCOMP, -2.26%

 falling 2.3% after a two-day rebound fueled by verbal intervention by Beijing following last week’s equity weakness.

The rout saw other assets perceived as risky also fall, while traditional havens, including Treasurys and German government bonds, or bunds; gold and the Japanese yen found support. The yield on the 10-year German bund

TMBMKDE-10Y, -7.51%

 declined 2.9 basis points to 0.423%.

The yield on Italy’s 10-year government bond

TMBMKIT-10Y, +0.17%

 fell 0.9 basis point to 3.468%, despite expectations the European Commission will reject Rome’s budget proposal, potentially sparking a standoff over European Union fiscal rules.

The U.S. Treasury is also due to sell $38 billion in 2-year notes later Tuesday.

What are analysts saying?

Upcoming U.S. supply could see Treasurys underperform German bunds in the near term, wrote analysts at KBC Bank in Brussels, while “general risk sentiment” was likely to be the main driver of price action on Tuesday.

“From a technical point of view, the U.S. 10-year yield retested previous resistance around 3.12%. The yield remained above this level, strengthening the break and suggesting more upward potential in the medium term,” the KBC analysts wrote. “The cycle high stands at 3.26%, but next real key resistance only kicks in around 3.75%.”

What’s on the economic calendar

It is a busy day for Federal Reserve policy makers, with Minneapolis Fed President Neel Kashkari due to deliver remarks at an event at 9:30 a.m. Eastern and Atlanta Fed President Raphael Bostic set to participate in a discussion at the Louisiana State University Energy Summit at 2 p.m.

Chicago Fed President Charles Evans is scheduled to participate in a moderated discussion at Northwestern University at 6:15 p.m., while Kansas City Fed President Esther George is set to deliver a speech on the payment system at a conference in Australia at 8 p.m.

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Source : MTV