Bond Report: 10-year, 30-year Treasury yield logs biggest weekly drop in one and a half months

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U.S. Treasury yields rose on Friday, trimming their week long decline, after an official from the White House suggested negotiations for the phase one trade deal was nearing an end.

Bond yields retreated from their recent highs as news reports suggested trade negotiators from Washington and Beijing had struggled to resolve longstanding obstacles to an agreement.

What are Treasurys doing?

The 10-year Treasury yield TMUBMUSD10Y, +0.48%  rose 1.8 basis points to 1.833%, but down 9.7 basis points for the week, the largest such move in six weeks.

The 2-year note rate TMUBMUSD02Y, +1.05%   was up 1.9 basis points to 1.610%, trimming its week long drop to 5.4 basis points. The 30-year bond yield TMUBMUSD30Y, +0.08%   rose 1.1 basis points to 2.310%, paring its week long decline to 10.5 basis points, its largest such move in six weeks.

What’s driving Treasurys?

Investors have been dragged around by the waxing and waning prospects of a trade deal amid hopes that it could lead to a recovery in global economic growth, and curbing a source of worry that has hampered business investment

White House economic adviser Larry Kudlow said negotiators are getting close to an agreement, but that President Donald Trump wasn’t yet ready to sign off. Trump “likes what he sees, he’s not ready to make a commitment, he hasn’t signed off on a commitment for phase one, we have no agreement just yet for phase one,” he said at a Council on Foreign Relations event, according to The Wall Street Journal.

The first phase of an agreement that may have as many as three phases will be “relatively limited in scope,” with the major focus being on “current trade” and whether China is willing to commit to $40 billion to $50 billion of agriculture purchases, Commerce Secretary Wilbur Ross told Fox Business on Friday.

U.S. economic data also provided some evidence that consumers remain willing to spend, though at a slower pace than earlier this year. U.S. retail sales growth rebounded in October, rising 0.3% after a 0.3% decline in September, above the 0.2% growth expected by economists surveyed by MarketWatch. Excluding autos and gasoline sales, however, sales rose 0.1%, below the 0.4% consensus forecast.

But U.S. industrial output fell by the most in 17 months in October, down 0.8%, worse than the 0.5% decline expected by economists polled by MarketWatch. Industrial capacity in use slumped to 76.7 in October, the lowest level in slightly more than two years.

Bond prices retreated and stocks rose, with the S&P 500 SPX, +0.77%  , Dow Jones Industrial Average DJIA, +0.80%   and Nasdaq Composite COMP, +0.73%   all closing at records on Friday.

See: Modern Monetary Theory carries ‘grain of truth’ and that’s why it’s dangerous, says former Treasury official

What did market participants’ say?

“The [White House] is again talking up trade prospects, while actual Chinese purchases of US grains are lagging volumes promised in earlier discussions. Global stocks like the White House spin but are not gaga. The expected uptick in yields is muted, however,” wrote Jim Vogel, an interest-rate strategist at FHN Financial.

“The consumer was the sole support to the economy in Q2 and Q3, but the question remains whether or not consumption can continue to provide indefinite support without improvement in other key areas?” said Lindsey Piegza, chief economist for Stifel, of the recent retail sales numbers.

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