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U.S. Treasury yields rose on Wednesday as stocks headed for a sixth straight day of gains in the wake of last week’s U.S. – China trade deal, while data this week suggested some stabilization in the global economic slowdown.
Investors largely looked past impeachment proceedings against President Donald Trump in Congress, with analysts noting his removal from office was unlikely.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, +2.14% rose 3.4 basis points to 1.922%, its highest since Nov. 8. The 2-year note yield TMUBMUSD02Y, +0.26% was flat at 1.633%. The 30-year bond yield TMUBMUSD30Y, +2.01% climbed 3.4 basis points to 2.350%, its highest since Nov. 13.
The selloff in long-term government paper steepened the slope of the yield curve, as measured by the spread between the 2-year note and the 10-year note rate. That gap widened to 28 points, around its widest levels since June.
What’s driving Treasurys?
Some positive data from export-dependent Germany suggested global growth could bottom out next year as the U.S. – China tariff deal reduces tensions. The Ifo business-climate index rose to 96.3 in December, from 95.1 in November.
The U.S. House also approved a $1.4 trillion spending package on Tuesday to avoid a partial government shutdown. Congress needs to pass the bills by Friday to avoid the closure of the federal government.
Meanwhile the Federal Reserve is greasing the wheels of the equities rally by providing extra liquidity for banks through short term repo operations and purchases of T-bills. The U.S. central bank’s efforts to restore calm to financial markets in the aftermath of a sudden spike in short-term borrowing costs in mid-September has proven to be successful, said New York Fed President John Williams on Wednesday.
As for the Federal Reserve, Chicago Fed President Charles Evans said he didn’t think the U.S. central bank needed to lower interest rates further, in his first remarks since the December meeting.
Investors may keep an eye on Washington later Wednesday as the House of Representatives votes on the articles of impeachment against President Donald Trump later Wednesday. So far, markets have paid little attention to the political drama, amid questions whether an impeachment vote will make any headway in the Senate, analysts said.
Read: Here’s what’s happening next in Democrats’ effort to impeach President Trump
See also: Why stock investors are keeping calm about impeachment — and what it would take for that to change
What did market participants’ say?
“It is, however, widely expected that the Republican-led Senate will ultimately acquit Mr Trump. This, and other factors bode well for Mr Trump,” said rates analysts at Rabobank.
