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U.S. Treasury and European bond yields showed muted reaction on Tuesday to a deal on the European Union’s recovery fund, which will deploy billions of euros across its member sates to cushion the economic blow from the coronavirus-driven downturn.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, 0.617% was up 0.2 basis point to 0.622%, while the 30-year bond yield TMUBMUSD30Y, 1.314% edged 0.3 basis higher to 1.321%. The 2-year note rate TMUBMUSD02Y, 0.153% was virtually unchanged at 0.151%.
What’s driving Treasurys?
EU leaders agreed to jointly borrow €750 billion ($857.8 billion) of funds for a fiscal stimulus package that would support the hardest hit economies in the 27-member economic bloc. An agreement was also reached on the EU’s budget over the next seven years, amounting to €1074 billion.
Investors had mostly anticipated a deal on the EU recovery fund, despite negotiations had stretched to five days. Even though Italy was set to secure 209 billion euros of funds, the 10-year Italian bond yield TMBMKIT-10Y, 1.083% was only down 0.9 basis point to 1.080%.
Equities showed more of a response, with the Stoxx 600 Europe index SXXP, +0.92% up 1%. Futures for the S&P 500 SPX, +0.84% and Dow Jones Industrial Average DJIA, +0.03% were pointing to a higher open for Wall Street.
Investors mauy also eye the Federal Reserve on Tuesday. The Senate is set to vote on the nominations of Judy Shelton and Christopher Waller.
What did market participants’ say?
“The agreement on the recovery fund largely follows the compromise that had already shaped over the past days, and which had already been received positively by markets, that is if we take the performance of government bond spreads as an indicator,” said Antoine Bouvet, senior rates strategist at ING, in a note.
