U.S. Treasury prices rose Tuesday, pulling down yields, as investors steered away from stocks and other risky assets after President Donald Trump said it might be better to hold off on a U.S.-China trade deal until after the 2020 presidential election.
What are yields doing?
The yield on the 10-year Treasury note TMUBMUSD10Y, -2.61% fell 4.9 basis points to 1.786%, while the 2-year Treasury yield TMUBMUSD02Y, -2.98% declined 4 basis points to 1.572%. The 30-year Treasury bond yield TMUBMUSD30Y, -1.87% dropped 4.9 basis points to 2.234%. Yields and debt prices move in opposite directions.
What’s driving the market?
Yields were pulled down in early morning action after Trump, speaking in London, said he had no deadline for completing long-running U.S.-China trade talks. “In some ways, I think it’s better to wait until after the election if you want to know the truth. But I’m not going to say that, I just think that,” he said.
Analysts said it was unclear whether Trump’s remarks signaled an unraveling of talks or were merely a negotiating tactic but Trump’s remarks cast doubt on whether the imposition of fresh import tariffs on Chinese goods on December 15 can now be avoided.
The remarks saw global equity markets fall, with U.S. stock-index futures pointing to a sharply lower start for Wall Street. Stocks have in recent months amid optimism over prospects for a so-called phase one trade deal, though early expectations for a quick resolution have been repeatedly disappointed and Trump’s willingness to open new fronts in the trade war – with Argentina, Brazil and France also – has unnerved markets.
On Monday tweeted that he was bringing back tariffs on Brazilian and Argentina steel and the administration also proposed tariffs of up to 100% on $2.4 billion in French imports.
The takeaway from the market action is that “large volumes are trying to find their way to safety before year-end,” said Jim Vogel, executive vice president at FHN Financial, in a note.
“The swing on 10-year U.S. Treasury yields in less than 36 hours has been 7 basis points, with more volatility ahead the rest of the week,” Vogel said. “In the uproar, any data disappointment or pleasant surprise can bring an overreaction.”
“The players with the most capital to invest will execute their last 2019 decisions the week of Dec. 16,” he said, which means “sudden changes and large market volumes are the rule for the next three weeks. Yet, it’s possible current Treasury ranges can return to dominate rates when the week of January 13 rolls around.”