Treasurys Strengthen Along With Trade Concerns -- Update
November 20 2019 - 5:19PM
Dow Jones News
By Sam Goldfarb
U.S. government bonds extended recent gains Wednesday after new
concerns arose about the prospects for a U.S.-China trade
agreement.
The yield on the benchmark 10-year U.S. Treasury note fell to
1.737% from 1.785% Tuesday, marking its sixth decline out of the
past seven trading sessions.
Yields, which fall when bond prices rise, slid overnight after
the Senate passed legislation late Tuesday aimed at stemming what
senators said was the erosion of democratic freedoms in Hong
Kong.
Though not directly tied to U.S.-China trade talks, some
analysts said the legislation could exacerbate tensions between the
two countries, making a trade deal more difficult. Passage of the
bill also came as investors' optimism about a deal was already
receding based on news reports describing friction between the two
sides over issues such as China's demand for removing tariffs and
resistance to buying a specific amount of U.S. farm products.
A Reuters report that the first phase of a trade deal between
the U.S. and China may not happen by year-end caused yields to drop
further on Wednesday afternoon, while stocks also fell near session
lows.
Concerns about trade have boosted Treasurys over the past week,
a reversal of the selling that took place over the previous month
when investors were more confident about a trade deal.
Investors often buy Treasurys during times of political and
economic uncertainty because the bonds offer steady interest
payments with essentially no risk of default. Demand for that
safety has pulled the yield on the 10-year note down from its
recent peak of 1.930% on Nov. 8. The yield, though, remains
comfortably above its 52-week closing low of 1.456% reached in
early September.
There has been a divergence in how different types of Treasurys
have performed in recent sessions.
While yields on longer-term bonds have fallen materially,
short-term yields, which are particularly sensitive to changes in
monetary policy, have barely budged. That indicates that downbeat
trade headlines haven't yet led investors to count on further
interest-rate cuts by the Federal Reserve.
As they were poised last month to cut interest rates for the
third time this year, most Fed officials thought that would be
enough to support the economy barring a change in the outlook,
according to minutes from the Oct. 29-30 meeting released
Wednesday.
Although the gap between long-term and short-term yields could
continue to shrink, some investors and analysts think it could be
difficult for long-term yields to fall much further if there is no
change in interest-rate expectations.
"You probably need the front end to participate in order to move
further to lower yields," said Daniel Mulholland, head of U.S.
Treasury trading at Crédit Agricole.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
November 20, 2019 17:04 ET (22:04 GMT)
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