Treasury yields remain lower as investors weigh Fed talk, U.S.-China negotiations

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Treasury prices rose Friday, putting yields under pressure, as investors weighed remarks by several Federal Reserve officials and awaited further developments on the U.S.-China trade front, including a meeting between President Donald Trump and Beijing’s top trade negotiator.

What are yields doing?

The yield on the 10-year Treasury note














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 fell 3.2 basis points to 2.655%, while the 2-year Treasury note yield














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 slipped 3.7 basis points to 2.491%. The 30-year Treasury bond yield














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 fell 2.5 basis points to 3.021%. Yields and debt prices move in opposite directions.

What’s driving the market?

Yields spent the day under pressure, failing to garner much direction from a string of appearances by Fed officials at a monetary policy conference and upbeat remarks on trade negotiations

Federal Reserve Vice Chairman Richard Clarida said the central bank should consider a policy that would allow inflation to run above target if it had undershot in the past. Under current policy, the Fed targets an inflation rate of 2% each year, regardless of what had occurred in the past.

Read: Experts fear a 1960s-style rerun of the Fed letting inflation build up

New York Fed President John Williams said the relationship between employment and inflation, known as the Phillips curve, is “alive and kicking.”

Meanwhile, U.S.-China trade talks remained in focus. President Donald Trump met with China’s top negotiator, Vice Premier Liu He, at the White House. Trump said negotiators had reached a deal on stabilizing China’s currency and that he might meet with Chinese President Xi Jinping in Florida next month in an attempt to wrap up talks.

Trump earlier this week indicated that a de facto extension of an early March deadline for a deal could be in the offing if no agreement is in place at that time. Trump told reporters that the deadline wasn’t a “magical” date. Tariffs on imports of Chinese goods are due to rise to 25% from 10% at 12:01 a.m. Eastern on March 2 if no deal is completed.

A fall in German bund yields after a weaker-than-expected reading of a closely watched business sentiment index could also be a drag on U.S. yields, analysts said. The yield














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 on the 10-year German government bond, known as the bund, fell 3.9 basis points to 0.92%.

The Ifo Institute said Friday that its business-climate index fell to 98.5 in February from a revised 99.3 points in January. The outcome marks the lowest level since January 2015, when the index also stood at 98.5 points, and came in below economists’ forecasts of 99.0 points.

What are analysts saying?

“In essence, the announcement of a delay [on a tariff increase] could catalyze a very modest down trade in U.S. [Treasurys], while a meeting which appears to end on an acrimonious note would drive an asymmetric rally,” said Ian Lyngen, rates strategist at BMO Capital Markets, in a note. “Were an extension to be granted, the question would then become whether this is merely a delay of higher duties or a step toward avoiding them altogether.”

The tone from Fed speakers “will probably be dovish, but that shouldn’t surprise,” wrote analysts at KBC Bank in Brussels. “The Fed used lack of inflationary pressure as one of the reasons to explain this year’s U-turn. This week’s FOMC minutes hinted at a March announcement on ending the balance sheet runoff by the end of the year. The US 10-year yield remain stuck in a 2.49%-2.78% sideways trading range.”

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Source : MTV