Treasury prices rose Friday, putting yields under pressure, as investors weighed remarks by several Federal Reserve officials and awaited further developments on the U.S.-China trade front, including a meeting between President Donald Trump and Beijing’s top trade negotiator.
What are yields doing?
The yield on the 10-year Treasury note TMUBMUSD10Y, -1.76% 5.1 basis points to 2.638%, while the 2-year Treasury note yield TMUBMUSD02Y, -1.97% slipped 4.6 basis points to 2.479%. The 30-year Treasury bond yield TMUBMUSD30Y, -0.91% fell 4.1 basis points to 3%. Yields and debt prices move in opposite directions.
What’s driving the market?
In its annual report to Congress, the Fed said it would stick to its “patient” approach toward guiding the U.S. economy, offering few surprises and reinforcing a decision last month to put rate moves on hold, amid fresh worries about the economy.
Remarks by Fed officials attending a monetary policy conference in New York weren’t seen having a major effect on Treasurys.
Federal Reserve Vice Chairman Richard Clarida said the central bank should consider a policy that would allow inflation to run above target if it had undershot in the past. Under current policy, the Fed targets an inflation rate of 2% each year, regardless of what had occurred in the past.
Read: Experts fear a 1960s-style rerun of the Fed letting inflation build up
New York Fed President John Williams said the relationship between employment and inflation, known as the Phillips curve, is “alive and kicking.”
Meanwhile, U.S.-China trade talks remain in focus. News reports point to signs of progress but also continued divisions over intellectual property rights and other issues. Stocks were set to get a lift, however, on a scheduled White House meeting Friday between President Donald Trump and China’s top trade negotiator, Vice Premier Liu He.
Trump earlier this week indicated that a de facto extension of an early March deadline for a deal could be in the offing if no agreement is in place at that time. Trump told reporters that the deadline wasn’t a “magical” date. Tariffs on imports of Chinese goods are due to rise to 25% from 10% at 12:01 a.m. Eastern on March 2 if no deal is completed.
A fall in German bund yields after a weaker-than-expected reading of a closely watched business sentiment index could also be a drag on U.S. yields, analysts said. The yield TMBMKDE-10Y, -24.88% on the 10-year German government bond, known as the bund, fell 3.9 basis points to 0.92%.
The Ifo Institute said Friday that its business-climate index fell to 98.5 in February from a revised 99.3 points in January. The outcome marks the lowest level since January 2015, when the index also stood at 98.5 points, and came in below economists’ forecasts of 99.0 points.
What are analysts saying?
“In essence, the announcement of a delay [on a tariff increase] could catalyze a very modest down trade in U.S. [Treasurys], while a meeting which appears to end on an acrimonious note would drive an asymmetric rally,” said Ian Lyngen, rates strategist at BMO Capital Markets, in a note. “Were an extension to be granted, the question would then become whether this is merely a delay of higher duties or a step toward avoiding them altogether.”
The tone from Fed speakers “will probably be dovish, but that shouldn’t surprise,” wrote analysts at KBC Bank in Brussels. “The Fed used lack of inflationary pressure as one of the reasons to explain this year’s U-turn. This week’s FOMC minutes hinted at a March announcement on ending the balance sheet run-off by the end of the year. The US 10-year yield remain stuck in a 2.49%-2.78% sideways trading range.”
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