Treasury yields steady ahead of trade data

Treasury yields held their ground on Wednesday ahead of trade data that could crimp forecasts for third-quarter gross domestic product.

The 10-year Treasury note yield TMUBMUSD10Y, -0.19%   was flat at 2.900%, hovering near a three-week high. The 2-year yield note yield TMUBMUSD02Y, +0.00%   stood at 2.653%, while the 30-year bond rate TMUBMUSD30Y, +0.12%   was mostly unchanged at 3.066%. Bond prices move in the opposite direction of yields.

Traders are awaiting August’s trade deficit data to see if trade tariffs will hurt U.S. export sectors and whether higher import prices will weigh on consumption. A wider trade deficit may pare third-quarter GDP estimates, which is on track to hit 4.7% based on the Atlanta Federal Reserve’s GDPNow model.

Despite tariff fears, U.S. industry shows few signs of slowing down. Tuesday’s ISM manufacturing gauge surged to a fourteen-year high, highlighting the resilience of U.S. factories to a looming trade war and rising labor costs.

They’ll also look ahead to a bevy of speeches from members of the Fed’s interest-rate setting committee, which is set to meet on September 26. St. Louis Fed President James Bullard will speak at 9:20 a.m Eastern. Minneapolis Fed President Neel Kashkari will give a talk at 4 p.m., followed by Atlanta Fed President Raphael Bostic at 5:30 p.m.

Though a rate hike in the September meeting has already been priced in, investors are hoping to glean further clues on the central bank’s rate trajectory beyond next month and whether trade concerns could weigh on the probability of a December rate increase.

Italian bonds extended this week’s rally as deputy prime minister Luigi Di Maio said the upcoming budget would keep Italy’s fiscal house in order. Investors are on watch for signs that Italy’s populist government will push forward with a budget that would blow past the European-Union mandated deficit limits.

The 10-year Italian bond yield TMBMKIT-10Y, -2.72%   fell 16.1 basis points to 2.875%, after starting off the week at 3.234%, a four-year high. The yield decline helped to narrow the yield gap between the 10-year Italian bond and the German 10-year bond TMBMKDE-10Y, +6.77% a gauge of the relative attractiveness of Italian debt over less risky government paper, to 249 basis points from 289 basis points last Friday.

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