Treasury yields came off their intraday highs Wednesday after investors looked past a round of upbeat Chinese economic data.
The 10-year Treasury note yield TMUBMUSD10Y, -0.35% was virtually unchanged at 2.592%, after trading as high as 2.61%, while the 30-year bond yield TMUBMUSD30Y, -0.25% was also steady at 2.992%. The two-year note yield TMUBMUSD02Y, -0.31% was down 1.2 basis points to 2.402%. Bond prices move inversely to yields.
The 10-year German government bond yield TMBMKDE-10Y, +0.00% rose 1.1 basis points to 0.080%. The German benchmark maturity has steadily climbed since trading at negative levels a week ago.
China’s gross domestic product rose 6.4% year-on-year in the first quarter of 2019, aided by an 8.5% year-on-year jump in March’s industrial production data. Though the China data had a muted impact on Treasury trading Wednesday, investors attribute the general climb in long-term yields since late March on hopes that China's fiscal stimulus would boost eurozone and global growth, putting an end to the international economic headwinds that have drawn appetite for extended-maturity bonds, and suppressed such yields.
“The bond market has jumped onto the China reflation trade,” John Patttullo, a portfolio manager at Janus Henderson Investors, said in an interview with MarketWatch.
Analysts said the combination of optimism over U.S.-China trade talks and Beijing’s willingness to ease policy would eventually boost China’s economy.
“Since mid-2018, the authorities have put macro-economic stabilization at the top of their priority list and have shifted from financial deleveraging to piecemeal, targeted fiscal and monetary easing. Moreover, sentiment regarding the trade conflict has improved following the Trump-Xi truce agreed in December 2018 and the resumption of U.S.-China negotiations at various government levels in the course of this year,” wrote Arjen van Dijkhuizen, senior economist for ABN Amro.
Chinese stocks ended slightly higher, following strong gains on Tuesday. Overall, the CSI 300 000300, +0.04% was up 35.8%.
U.S. equities lost their earlier momentum, with the S&P 500 SPX, -0.23% closing slightly lower.
In U.S. economic data, March’s trade deficit narrowed to $49.4 billion, from $51.1 billion in February. And the Federal Reserve’s Beige Book said economic activity expanded at a “slight-to-moderate” pace in March.
As for the Fed, Philadelphia Fed President Patrick Harker said if inflation picked up, he could still see the possibility of a rate hike in 2019, and another hike in 2020.
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