Treasury yields climbed on Monday, after mostly dropping last week, as the threat of a trade clash between the U.S. and China moderated somewhat.
The two parties have begun quietly negotiating to improve Washington’s access to markets in Beijing, a report said, following a week marked by the intensifying threat of tariffs that sent investors fleeing to the perceived safety of bonds as stocks tumbled.
How are Treasurys performing?
The yield on the 10-year Treasury note TMUBMUSD10Y, +1.04% picked up 2.2 basis points at 2.848%.
The 30-year Treasury bond yield TMUBMUSD30Y, +0.62% advanced 1.9 basis points to 3.091%.
Read: How investors can protect against a trade war—in one sentence
The 2-year note yield TMUBMUSD02Y, +1.10% the most sensitive to shifting expectations for Fed policy, rose 2.5 basis points to 2.291%.
All three maturities declined for the week on the back of concerns about potential trade conflict. The 2-year note logged its largest one-week decline since Feb. 9, according to WSJ Market Data Group.
Bond prices move in the opposite direction of yields.
What are driving markets?
According to The Wall Street Journal, U.S. Treasury Secretary Steven Mnuchin and U.S. trade representative Robert Lighthizer in Washington have communicated with Liu He, China’s economic czar in Beijing, in an effort to avert trade war. They are discussing a reduction of Chinese tariffs on U.S. automobiles, more Chinese purchases of U.S. semiconductors and greater access to China’s financial sector by U.S. companies, the report said.
The report of behind-the-scenes talks comes after President Donald Trump’s administration imposed tariffs on as much as $60 billion in imports and other restrictions on Beijing. China in turn responded by threatening some $3 billion in tariffs of its own on U.S. products.
The talks suggest a softening of trade animosities that have threatened to blow up into a full-fledged trade conflagration.
Separately, the South Korean trade ministry said that the U.S. and Seoul agreed to amend their free-trade deal to address American concerns about a growing deficit and resolve friction over tariffs on South Korean steel.
The detente of sorts has helped put the S&P 500 index SPX, -2.10% and the Dow Jones Industrial Average DJIA, -1.77% on the track to pare back an ugly downtrend in March.
Yields had been mostly rising in 2018. The Fed communicated in its most recent monetary-policy update on Wednesday that it intends on lifting interest rates at least twice more in 2018, with an slightly faster clip of increases in coming years than bond investors had anticipated.
What data are ahead?
The Chicago Fed national activity index for February is due for release at 8:30 a.m. Eastern Time.
What are strategists saying?
“Bond yields are firmer as investor anxiety appears reduced as hopes that a trade war can be averted are fanned by a U.S.-Korea agreement and ongoing Sino-American talks,” wrote analysts at Brown Brothers Harriman in a Monday research note.
What else is on investors’ radar?
San Francisco Fed President John Williams is set to be the president of the New York Fed, one of the central bank’s most important positions, according to a report in the WSJ. Williams, 55, holds a Ph.D. in economics from Stanford University, and is expected to help complement Fed Chairman Jerome Powell, who recently succeeded Janet Yellen in the top central-bank spot. The New York Fed post is considered the third most important position behind Fed vice chairman.
On Monday, current New York Federal Reserve President William Dudley is scheduled to speak on regulatory reform in Washington, D.C. at 12:30 p.m. Eastern Time. Fed Vice Chair Randal Quarles is due to speak on consumer protection and small business at a forum in Atlanta at 7:10 p.m. Eastern.