U.S. government bonds saw bidding early Friday, extending a yield decline for Treasurys a day after the European Central Bank set the stage for unwinding its bond-buying program by the end of 2018 but laid out a less aggressive plan than the market had anticipated. Reignited fears of a trade dispute between the U.S. and China contributed to a move to the perceived safety of government paper.
Reports indicate that the U.S. government is set to place tariffs on $100 billion in Chinese products that could face 25% levies, sparking a wave of worries about a trade clash resurfacing between the world’s biggest economies, rippling throughout the globe.
President Donald Trump late Thursday approved a first round of levies on about $50 billion in Chinese goods. Details of the initial list were expected to be announced later Friday. Beijing responded to Trump’s list approval by saying it will impose levies of its own on $50 billion in U.S. goods.
The 10-year Treasury note yield
TMUBMUSD10Y, -1.00%
fell by 2.4 basis points to 2.924%, while the two-year note yield
TMUBMUSD02Y, -0.96%
edged 1.2 basis points lower to 2.562%. The 30-year bond
TMUBMUSD30Y, -0.94%
shed 2.4 basis points to 3.045%. Bond prices rise as yields fall.
Equity futures for the Dow Jones Industrial Average
YMU8, -0.79%
DJIA, -0.10%
were 144 points, or 0.6%, lower at 25,066, while those for the S&P 500 index
ESU8, -0.54%
SPX, +0.25%
lost 11.90 points, or 0.4%, to 2,776.50.
Meanwhile, a measure of the so-called yield curve, the differential between two-year and 10-year Treasurys, stood at 36.2 basis points, or 0.362 percentage point, holding at the tightest spread since 2007.
The yield curve, which reflects the rate gap across all Treasury maturities and tends to slope higher because investors generally demand richer yields for lending for a longer period, has been an accurate predictor of recessions.
Worries about an escalation of tariff-driven tensions comes as fixed-income investors have digested a barrage of central-bank actions, capped by a the Bank of Japan’s decision on Friday to hold its rates steady, as expected, amid signs of recalcitrant inflation, failing to move near the central bank’s 2% target.
On Thursday, the European Central Bank laid out the end of its easy-money efforts, though it offered a longer runway for an eventual rate hike than the market had anticipated, while the Federal Reserve on Wednesday lifted the federal-funds rate a quarter-point to a range between 1.75% to 2%, marking the second rate hike of 2018 and the seventh since U.S. policy makers started to normalize rates in December 2015.
Dallas Fed President Rob Kaplan will appear in a moderated discussion at a Fort Worth Chamber of Commerce lunch at 1:30 p.m. Eastern.
Read: 5 key takeaways from the ECB’s decision to wind down its massive bond-buying program
What are strategists saying?
Michael Skordeles, U.S. macrostrategist at SunTrust Advisory Services Inc., said “the 10-year US Treasury yield is near 3%. We expect the tax reform package and the recently approved federal budget will boost US growth and create some further upside pressure on bond yields.”
Economic reports on deck
- Empire State index for June, a regional economic snapshot from the New York Federal Reserve, is due at 8:30 a.m. Eastern time
- Industrial production and capacity utilization data for May are scheduled for a 9:15 a.m. release.
- The consumer-sentiment index for June is on the docket for 10 a.m.
Source : MTV
