Bond Report: U.S. Treasury yields rebound on trade hopes

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U.S. Treasury yields jumped on Thursday after a resurgence of optimism about a U.S – China trade deal weighed on demand for safe haven assets such as government paper in a volatile week that has seen bond prices fluctuate in line with the ever-changing state of the trade talks.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +4.12%   surged 7.1 basis points to 1.883%, close to the upper bound of its three-month trading range at 1.90%. The 2-year note rate TMUBMUSD02Y, +2.01%   was up 4 basis points to 1.647%, while the 30-year bond yield TMUBMUSD30Y, +1.97%   climbed 7.4 basis points to 2.371%.

What’s driving Treasurys?

Hopes for a trade deal rebounded in the morning, coming closely on the heels of a report that suggested investors may have to wait for a partial trade deal until December.

On Thursday, the Chinese Ministry of Commerce spokesman Gao Feng said both sides had laid out a framework for rolling back existing import duties on top of the ones that were set to kick in at Dec. 15, Bloomberg News and the South China Morning Post reported . He added that any phase-1 trade agreement would need to see the U.S. and China simultaneously cancel the imposed tariffs at the same proportional rate.

“Both sides have agreed to cancel additional tariffs in different phases, as both sides make progress in their negotiations,” said Feng.

U.S. stock futures were trading higher on the positive trade developments, with the S&P 500 SPX, +0.96%   and the Dow Jones Industrial Average DJIA, +0.00%   seen climbing at the opening bell.

Later, investors will look ahead to U.S. jobless claims data due at 8:30 a.m. ET, and an auction for 30-year government bonds at 1 p.m. ET

Elsewhere, the Bank of England voted to keep interest rates on hold at 0.75%, due to slowing global growth and lingering Brexit uncertainty.

What did market participants’ say?

“All we’ve heard from on this is from the Chinese Ministry of Commerce, not any U.S. official,” wrote Peter Boockvar, chief investment officer at Bleakley Advisory Group. “Thus, details are scant on what the process and enforcement would be on eliminating in tranches the current tariffs on Chinese imports and no timetable was mentioned. Hopefully we’ll hear more today.”

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