Treasury yields inch higher as investors look beyond economic wreckage to assess reopening progress


U.S. Treasury yields rose Tuesday as stocks gained ground on hopes that the U.S. economy had handled the worst of the COVID-19 crisis as states and counties start to reopen businesses.

What are Treasurys doing?

The 10-year Treasury note yield

rose 2 basis points to 0.656%, while the two-year note rate

was virtually unchanged at 0.186%. The 30-year bond yield

climbed 3.4 basis points to 1.330%.

What’s driving Treasurys?

Traders looked past the economic wreckage wrought by the coronavirus pandemic as the U.S. begins to lift the business lockdowns put in place to stem the spread of the disease. The buoyant sentiment in equities sapped demand for government paper, with U.S. equities finishing higher on Tuesday.

Economic data underlined the pain felt by businesses. The Institute for Supply Management’s service purchasing managers index for March came in at 41.8%, its lowest reading since the 2007-’09 recession. Economists polled by MarketWatch anticipate the services gauge to fall to 40% in April. Any number below 50% represents a contraction in industrial activity.

In other data, the U.S. international trade deficit widened slightly to $44.4 billion in March, down from $39.8 billion in February.

Federal Reserve Vice Chairman Richard Clarida said in an interview with CNBC that he still anticipates an economic recovery in the second half of the year. Chicago Fed President Charles Evans also said he saw a return to economic growth after June, but added “a lot of things have to go right” to get unemployment down to 5% by end of 2021.

Last week, Fed Chairman Jerome Powell said the U.S. central bank would do everything in its power to support the economy, but added that further help from the federal government and Congress needed to be forthcoming.

A German court ruled Tuesday that the German government and parliament should have challenged the ECB’s 2015 quantitative-easing program and were now obliged to take “active steps” against it.

The Bundesbank may not take part in QE, the ruling says, unless the ECB can prove within three months that its program is “not disproportionate.” The ruling raises troubling questions about the future of the recent ECB bond-buying program, implemented to combat the fallout from the coronavirus pandemic.

Italian government bonds sold off on the ruling, with the 10-year Italian government bond yield

surging 12 basis points to 1.874%.

See: ‘This is the most important question’ for macro investors, and the answer could point to negative bond yields in U.S., says analyst

What did market participants say?

“I’m not sure assuming the worst is the best way of predicting the future, and I think that’s what’s playing out in financial markets. There were a lot of times we felt like we were on the ropes, and fast forward a few years, we turned out to be fine,” said Drew Matus, chief market strategist for MetLife Investment Management, in an interview.

Source : MTV