Bond Report: Treasury yields inch higher ahead of Trump speech

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U.S. Treasury yields edged higher on Tuesday as investors looked forward to parsing a speech by President Donald Trump in the hopes of gleaning clues on the state of U.S.-China trade discussions.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -0.27% was up 0.9 basis point to 1.942%, around a three-month high. The 2-year note rate TMUBMUSD02Y, +0.74% rose 1.9 basis points to 1.685%, while the 30-year bond yield TMUBMUSD30Y, -0.54% was unchanged at 2.417%.

What’s driving Treasurys?

Trump will speak at the Economic Club of New York at noon ET. He could clarify the state of U.S.-China trade talks amid renewed concerns that the phase one trade deal may not involve a rollback of existing tariffs. Over the weekend, Trump said he hadn’t “agreed to anything,” appearing to throw doubt on the possibility of a partial trade resolution this month.

Reuters reported that the U.S. president was expected to announce to push back the date when he would decide on whether to place tariffs on cars and auto part imports from the European Union, citing European officials.

As for the Federal Reserve, Philadelphia Fed President Patrick Harker and Minneapolis Fed President Neel Kashkari will speak later on Friday. Fed Vice Chairman Richard Clarida said factors other than quantitative easing may have contributed to the dramatic shrinkage of the so-called term premium, the additional yield investors demand for owning longer-dated debt.

Fed Chairman Jerome Powell will later testify in front of Congress from Wednesday to Thursday, where he will make his first public comments since the central bank lowered interest rates in October.

Elsewhere, Japanese bond markets restarted their months long selloff, with the 10-year Japanese government bond yield TMBMKJP-10Y, +45.06%  rising 4 basis points to negative 0.02% on Tuesday, from its August low of negative 0.29%.

What did market participants’ say?

“After a sharp reversal higher and steeper, there has been a short-term pause in the U.S. rate market ahead of a very busy week,” wrote Gregory Faranello, head of U.S. rates for AmeriVet Securities. “The latest chatter has lent itself once again to more questions than answers on the trade front: the history has not been good. So, markets pausing is rational.”

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