BOND REPORT: Treasury Yields Fall As Trade Tensions And Italy Fears Stoke Demand For Havens
June 21 2018 - 4:08PM
Dow Jones News
By Sunny Oh
Treasury prices rose, pushing yields lower, on Thursday after
investors grappled with the potential threat of a euroskeptic
policies in Italy and the impact of protectionism on a global
economy already reeling from a strong dollar and higher interest
rates in the U.S.
What's the market doing?
The 10-year Treasury note yield fell by 2.9 basis points to
2.899%. The 2-year note yield was down 2.1 basis points to 2.541%,
while the 30-year bond yield slipped 2.1 basis points to
3.043%.
The 10-year Italian government bond yield was up 18.4 basis
points to 2.745%, while the 10-year German bond yield was down 3.9
basis points to 0.335%.
Bond prices move in the opposite direction of yields.
What's driving Treasurys?
Trade tensions simmered in the background after Federal Reserve
Chairman Jerome Powell and ECB President Mario Draghi said
Wednesday a trade war would hurt the global economic outlook
(http://www.marketwatch.com/story/powell-draghi-express-concern-over-trade-wars-2018-06-20)on
a central banking panel in Sintra, Portugal. German car maker
Daimler (DAI.XE), in a profit warning, said that tariffs on Chinese
imports would have a knock-on impact on their bottom line. The
announcement sent European shares lower
(http://www.marketwatch.com/story/auto-makers-italian-stocks-lead-european-shares-lower-2018-06-21),
with the German DAX 30 index(DAX) down by more than 0.8%.
The return of concerns over tensions between Beijing and
Washington, drew investors to the safety of government paper. That
has helped counter the strong data and building price pressures in
the U.S. economy.
See: Auto makers, Italian stocks lead European shares lower
(http://www.marketwatch.com/story/auto-makers-italian-stocks-lead-european-shares-lower-2018-06-21)
The new coalition government in Italy appointed euroskeptic
Alberto Bagnai as the head of the Finance Committee in the upper
house of the Senate and Claudio Borghi as the head of the budget
committee in the lower house of parliament. Borghi has railed
against austerity and balanced-budget policies, and has previously
called for the issuance of short-term government bonds, or
mini-bots, which some have read as the beginnings of a parallel
currency, threatening the euro
(http://www.marketwatch.com/story/italys-economy-could-soar-with-a-parallel-currency-2017-08-23).
What are market participants saying?
"Given the twin pressures of strong growth and imminent price
rises (tariffs will do that, for sure), the main thing anchoring
yields is concern about the global economy. And if U.S. equities
aren't worried about that, why should the Treasury market be?
Presumably the next step is to take yields and the dollar up as
much as it takes to cause as much volatility in financial markets
(EM, credit) as it takes to impact the U.S. equity market," wrote
Kit Juckes, chief fixed-income strategist for Société Générale.
Read: Here's why trade-war jitters are putting a lid on U.S.
bond yields
(http://www.marketwatch.com/story/heres-why-trade-war-jitters-are-putting-a-lid-on-us-bond-yields-2018-06-20)
"News that two euroskeptic lawmakers from the League have been
named to head key economic committees in Italy is serving as a
reminder that the political backdrop in Europe is becoming
increasingly murky," said David Rosenberg, chief economist for
Gluskin Sheff, in a note.
(http://www.marketwatch.com/story/heres-why-trade-war-jitters-are-putting-a-lid-on-us-bond-yields-2018-06-20)
What data is on investors' radar?
The Philadelphia Fed manufacturing index slowed to 19.9 in June
from 34.4 in May
(http://www.marketwatch.com/story/philly-fed-manufacturing-index-slows-in-june-2018-06-21),
a 19-month low. Initial jobless claims for the week of June 16 fell
by 3,000 to 218,000, suggesting the labor market remains tight.
(END) Dow Jones Newswires
June 21, 2018 15:53 ET (19:53 GMT)
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