US Treasury yields declined Wednesday as a rally in dollar-denominated risk assets took hold, following comments from President Donald Trump that suggested tariffs on Chinese imports may drop. Long-maturity yields fell 17 basis points to around 4.71%, while 10-year yields dropped 15 basis points before paring their declines.
The market reaction is attributed to Trump’s comments, which led to a “clear tone shift” towards relief, according to AmeriVet Securities’ Gregory Faranello. However, this relief rally may be short-lived as the market has reversed recent trends of higher long-end rates and lower stock prices.
The decline in yields comes despite rising US equities, with the S&P 500 Index surging more than 3% on Wednesday. The second of this week’s three Treasury note auctions saw strong demand for $70 billion of new five-year notes, which were sold at a yield of 3.995%. This was a basis point lower than where the notes were trading at the bidding deadline.
Foreign investors have been attracted to Treasuries, particularly those with maturities of less than five years. A sale of seven-year notes follows on Thursday, and two-year notes were sold Tuesday. The increased demand is seen as a sign that non-US investors are taking Trump’s comments as a buy signal for US assets.
The yield curve has contracted back to around 82 basis points after reaching historically wide levels earlier in the week. However, economists believe that the bond market will still look at economic data, even if it is sparse this week. A near-vacuum into which White House pronouncements on trade negotiations and Fed policy have become the principal driver of daily swings has been created due to a lack of top-tier US economic data this week.
Source: https://finance.yahoo.com/news/us-treasuries-rally-worries-over-141606177.html