Stocks rallied Monday, sapping appetite for haven assets like Treasurys and pushing up yields as investors looked past heightened trade tensions to build on jobs data-inspired gains scored at the end of last week.
What are yields doing?
The yield on the benchmark 10-year Treasury note
TMUBMUSD10Y, -0.12%
rose 4.4 basis points to 2.939%, while the two-year Treasury note yield
TMUBMUSD02Y, -0.32%
added 3.8 basis points to 2.510%. The yield on the 30-year Treasury bond
TMUBMUSD30Y, -0.03%
climbed 3.7 basis points to 3.083%.
Yields and debt prices move in opposite directions.
What’s driving the market?
U.S. stocks ended higher Monday, with the tech-heavy Nasdaq posting its first record close since March 12. Risk assets enjoyed the impetus of strengthening growth expectations after May jobs data showed the economy had added 223,000 jobs in May versus expectations for 200,000, based on a MarketWatch survey of economists.
The data reinforced expectations that the Federal Reserve will move to raise interest rates at least two more times in 2018 following its March rate increase, while boosting odds of a third additional rate rise back to around 40%, according to Fed funds futures.
In a week devoid of first-tier economic data, traders have turned their focus toward the central bank. Recent speeches by the likes of Fed Gov. Lael Brainard have helped dispel the belief that policymakers may hold off on a fourth rate hike this year. Brainard said she would not slow down the pace of rate hikes based on a flattening yield curve, which some have read as the bond market pricing in an economic slowdown.
The central bank’s rate-setting body is set to meet next week, where a rate hike is expected.
Trade tensions showed no sign of abating, with the Trump administration sticking with tariffs despite pushback from its Group of Seven allies and China. In a joint statement over the weekend, finance ministers from the six non-U.S. G-7 countries criticized the administration’s steel and aluminum tariffs on imports from the European Union, Canada and Mexico, expressing their “unanimous concern and disappointment.”
See: Death knell for the G-7 may be at hand after hostile reaction to Trump tariffs
Separately, China said it would need assurances that the U.S. won’t go ahead with plans to put tariffs on Chinese imports before it would abide by any agreement to buy more U.S. products.
Read: Trump-inspired talk of trade war puts sleepy trade deficit report back in crosshairs
What are analysts saying?
“With Italian political risk on the backburner, focus may shift toward the trade front and whether or not Europe, Canada and Mexico will follow through with retaliatory action. While last week’s Italian government formation and positive Friday data (employment and ISM) drove a rebound in yields, we think there is room for Treasuries to sell-off further,” said Jonathan Cohn, interest-rate strategist for Credit Suisse.
“While a louder dovish contingent at the Fed has emphasized concerns over a neutral overshoot and curve inversion, Brainard’s speech last week suggests that the new core of the FOMC may not be quite so worried. Thus we may see a modest rebuild of hike expectations (and short positioning) ahead of the FOMC,” said Cohn.
Source : MTV
