Two-year government bond yield logs biggest daily rise in 3 weeks after Fed minutes

Treasury yields turn higher Thursday after the Federal Reserve’s minutes from a June meeting highlighted the central bank’s commitment to a gradual but steady rate increases.

What are Treasurys doing?

The 2-year note yield sensitive to shifting expectations for Fed policy, rose 3 basis points to 2.561%, the largest one-day climb since June 13. The 10-year Treasury note yield was up by 0.7 basis point to 2.840%.

The rate for the 30-year bond ended 0.6 basis point lower at 2.953%, closing below the 200-day moving average of 2.97%. A lasting breakthrough below the key charting level can draw further buying in Treasurys due to technical trading that tends to be triggered by certain yield or price levels.

Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

Minutes from the June meeting revealed the central bank’s commitment to its current rate-hike path. The account of the central-bank gathering, however, did list potential risks to the economy’s momentum: uncertainty in trade policy and weakness in emerging markets.

As ever, investors are keeping a vigilant eye on the potential for a trade war to erupt, as Beijing said it would only implement import levies on U.S. goods if Washington follows through with $34 billion of tariffs on Chinese imports just after midnight Eastern Time Friday.

Meanwhile, news reports said the European Union was looking into the possibility of trade talks between the world’s biggest car exporters to avoid a conflict with the U.S.

A U.S. official reportedly said the U.S. would be ready to stop threatening to impose tariffs on European car imports if the European Union removed duties on U.S. cars.

What did market participants say?

“Tomorrow is T-Day; the date Trump’s tariffs on Chinese goods are scheduled to take effect. While there is surely a contingent in the market which believes a delay of some type may be in the offing, we’ll argue this next step in the trade war has been effectively priced into the Treasury market,” said Ian Lyngen, head of U.S. rates strategy for BMO Capital Markets, in a note.

“Our assumption is that a more tempered reaction from China would be marginally bearish for the Treasury market and leave investors with the impression that the worst is over. but the rhetoric coming from both sides of the debate indicates a calming of trade tensions is an unlikely outcome,” he said.

“Some U.S. trade policy proposals have made their way into the FOMC’s discussions, although the lack of clarity over breadth and magnitude of trade actions makes it nearly impossible to forecast the economic impact. Nonetheless, we anticipate that this will be a topic of regular discussion going forward as trade implications become clearer,” said Bob Miller, BlackRock’s head of U.S. multisector fixed income.

What else is on investors’ radar?

The ADP private-sector payrolls report for June fell to 178,000, from 189,000 in May. Jobless claims for the week ending June 30 rose to 231,000, below the MarketWatch consensus forecast of 225,000. The Institute for Supply Management’s nonmanufacturing index rose to 59.1% in June, from 58.6% in May.