Bond Report: Global bond markets come under pressure as hopes for U.S. – China trade deal unwind haven trades

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Global bond yields rose on Tuesday as hopes for a partial U.S – China trade deal dampened demand for government paper in the U.S., Europe and Japan.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +3.08%   rose 3.3 basis points to 1.821%, while the 2-year note rate TMUBMUSD02Y, +2.55%   was up 1.4 basis points to 1.608%. The 30-year bond yield TMUBMUSD30Y, +2.65%   climbed 4 basis points to 2.313%.

What’s driving Treasurys?

News reports said that the White House was considering rolling back some existing tariffs on $111 billion of Chinese imports that had been imposed on Sept. 1 in order to finalize the so-called phase one deal. Originally, the deal was only expected to prevent the imposition of additional tariffs set to kick in at mid-December.

The positive trade developments spurred selling in overseas bond markets. The 10-year Japanese government bond yield TMBMKJP-10Y, +25.49%   jumped 6.5 basis points to negative 0.115%. while the 10-year German government bond yield TMBMKDE-10Y, +9.37%   was up 2.4 basis points to negative 0.327%, Tradeweb data show.

See: ‘A reflationary boom’ won’t be enough to send depressed bond yields higher, says JPMorgan

In economic data, U.S. trade deficit figures for September are due at 8:30 a.m. ET, followed by the Job Opening and Labor Turnover Survey for September at 10 a.m. The U.S. ISM services index for last month, also released at 10 a.m., could help underpin the recent improvement in economic sentiment after a stronger-than-expected employment report in October.

MarketWatch polled analysts expect the non-manufacturing gauge to come in at 54%, with any reading above 50% representing an expansion in economic activity.

Later, the U.S. Treasury Department will auction off $38 billion of 3-year notes at 1 p.m. A new influx of government paper can spur trading in the broader government bond market.

Investors will watch several speeches from senior Federal Reserve officials throughout the session, including Richmond Fed President Thomas Barkin and Dallas Fed President Robert Kaplan.

What did market participants’ say?

“Trade progress via the US and China being said to consider partial tariff rollbacks, coupled with most recent top-tier data prints coming in stronger than consensus paints a textbook picture for higher rates and equities as near-term recessionary fears moderate,” said Jon Hill, an interest-rate strategist at BMO Capital Markets, in a research note.

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