Bond Report: Treasury yields hold ground as investors eye trade developments

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U.S. Treasury yields struggled for direction on Monday as investors kept a close watch on progress towards a phase one trade agreement between Washington and Beijing, which has kept bond traders on tenterhooks.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -1.28%  fell 0.5 basis point to 1.803%, while the 2-year note rate TMUBMUSD02Y, +0.26%  rose a basis point to 1.602%. The 30-year bond yield TMUBMUSD30Y, -1.07%  fell 1.2 basis points to 2.281%

What’s driving Treasurys?

Investors saw conflicting reports on the prospect of a trade deal on Monday, with a report by CNBC suggesting that without rolling back existing tariffs the outlook for a resolution looked dim. Helping to offset the trade pessimism, the Trump administration issued a 90-day extension of a license allowing U.S. companies to keep doing business with Chinese telecom giant Huawei Technologies Co.

See: The biggest risk facing the stock market in the coming year isn’t trade jitters or the election, Deutsche Bank warns

In economic data, housing starts climbed 3.8% in October to an annual growth rate of 1.314 million, with economists polled by MarketWatch having expected it to run at a pace of 1.325 million. In addition, building permits jumped 5% in October to a 1.461 million annual rate.

Analysts say the drop in bond yields may be spurring increased economic activity in rate-sensitive sectors, including housing.

The Treasury International Capital report released on Monday showed that holdings of U.S. government paper by Japan and China, the two largest foreign investors of Treasurys, had fallen in September.

What did market participants’ say?

“Backed by a wall of central banking support on both sides of the Atlantic, investors are taking the relief provided by the president’s Huawei olive branch as positive in terms of equities while the ongoing trade spat remains more than justification for a continued bid for safe haven government bonds, notably Treasurys” and German government bonds, wrote analysts at Rabobank.

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