Treasury yields rose slightly Monday as trade tensions between the U.S. and China appeared to be dialed back somewhat after helping spark a stock-market selloff to close out last week.
How are Treasurys performing?
The 10-year Treasury note yield TMUBMUSD10Y, +0.06% added 0.7 basis points to 2.786%, the two-year note yield TMUBMUSD02Y, -0.53% , the most sensitive to the monetary-policy outlook, was up 1.2 basis points to 2.286%.
Meanwhile, the 30-year bond yield TMUBMUSD30Y, -0.21% was virtually unchanged at 3.017%, after the bond notched its largest weekly yield climb since Feb. 2 on Friday.
Bond prices fall as yields rise.
What is driving the market?
The appearance of softening trade tensions between the U.S. and China lifted appetite for assets considered risky after a Friday plunge for U.S. stocks knocked equity benchmarks sharply lower and bolstered demand for assets seen as havens. But reaction in Treasurys was mostly muted.
White House officials softened their tone during Sunday talk shows, playing down the possibility that the situation will escalate.
President Donald Trump alluded to hopes that an agreement could be reached between the two nations on trade. “China will take down its Trade Barriers because it is the right thing to do. Taxes will become Reciprocal & a deal will be made on Intellectual Property,” he said in a tweet.
See: Goldman says there is one ‘surefire’ way to cut U.S.-China trade deficit: recession
However, the tensions between Beijing and Washington appear to be far from resolved, with China said to be readying further countermeasures against American tariffs, and the country’s foreign ministry spokesman Geng Shuang declaring on Monday that trade tensions were the fault of the U.S. and his country couldn't engage in negotiations in the current situation as it stands, according to Reuters.
Also adding to political tensions is a suspected Syrian chemical-weapons attack on civilians near suburban Damascus that left at least 49 dead late Saturday. The U.S. has denied any role in a reported missile strike that occurred hours after the alleged chemical attack.
What are strategists saying?
“The coming week offers some of the more consequential data that we have seen thus far, with PPI and CPI both on the docket and political headlines subsiding (for the moment). We are watching data releases fairly closely for some of the themes that we’ve been on about, from the inability of producers to pass through prices (spread between CPI and PPI) to the all-important core inflation reading on Wednesday,” said Aaron Kohli, fixed-income strategist at BMO Capital Markets.
What else is on investors’ radar?
The Congressional Budget Office forecasted the return of trillion-dollar deficits in 2020, two years earlier than expected. Widening deficits have raised the risk that bond investors will be unable to take down the deluge of supply without interest rates rising much higher to attract demand.
Read: Tax cuts will lead to sea of red ink, CBO forecasts
If geopolitical jitters subside, investors will focus on upcoming economic data as the consumer price index reading on Wednesday gives the latest state of play on inflationary pressures building in the economy. A stronger-than-expected number could send yields higher.
What other assets are in focus?
The S&P 500 index SPX, +0.33% and the Dow Jones Industrial Average DJIA, +0.19% ended modestly higher Monday after equities unraveled to end last week’s trade, with the Dow finishing a brutal Friday session down more than 570 points.
Meanwhile, The 10-year German bond yield, known as the bund, TMBMKDE-10Y, +1.44% , was at 0.506%, 1.3 basis points higher than Friday’s level. The European debt is often viewed as a proxy for the economic health of the eurozone.