Treasury yields rose Monday after a meeting between President Donald Trump and Chinese leader Xi Jinping over the weekend led to a temporary cessation of trade hostilities between the two parties.

What’s driving Treasurys?

The 10-year Treasury note yield

TMUBMUSD10Y, +1.03%

rose 3.2 basis points to 2.033%, while the two-year note yield

TMUBMUSD02Y, +1.61%

was up 5 basis points to 1.789%. The 30-year bond rate

TMUBMUSD30Y, +0.87%

picked up 2.9 basis points to 2.557%. Debt prices move in the opposite direction of yields.

What’s driving Treasurys?

Trump agreed to hold off on imposing tariffs on another $300 billion of Chinese imports, and said U.S. suppliers will be allowed to sell some products again to Huawei. The deal, however, keeps existing tariffs in place, an issue for investors who had hoped the Group of 20 meeting would help pare the current import levies on $250 billion of goods.

People’s Bank of China Gov. Yi Gang said the outcome from the weekend’s meeting was “better than expected,” according to Reuters. But other analysts were more pessimistic on the results of the G-20 summit, as neither side emerged with a path toward a comprehensive trade deal.

Stocks in Asia rose sharply. Shares for Japan’s Nikkei index

NIK, +2.13%

  and China’s Shanghai Composite

SHCOMP, +2.22%

  gained more than 2% on Monday. The S&P 500

SPX, +0.77%

SPX, +0.77%

 established an all-time intraday high before petering out toward the end of the session.

See: Stock futures soar as U.S., China agree to truce on tariff war

In economic data, the Institute for Supply Management’s manufacturing index for June came in at 51.7%, slightly above the 51.3% anticipated by analysts. The factory activity gauge has dropped precipitously in the past few months as trade-war concerns have shaken the confidence of businesses dependent on imported goods. Any reading above 50% reflects an expansion of industrial activity.

What did market participants say?

“Trade is always a volatile issue. Before it was bad and now it’s great again. That could change on a dime,” Gershon Distenfeld, co-head of fixed income at AllianceBernstein, told MarketWatch.

“What is currently present, and maybe the more concerning for bondholders than stockholders, is this cloud of uncertainty. All that happened over the weekend is that the two sides agreed to work on a deal, and President Trump held off on additional tariffs. There was no framework for a deal, no changes in intellectual property, no agreement to open trade,” wrote Kevin Giddis, head of fixed income at Raymond James.

What else is on investors’ radar?

German and French government bond yields hit record lows again, following comments from Dutch central bank head Klaas Knot, who said the economic outlook for the second and third quarter were not as favorable as the first quarter.

Investors say Knot is seen as a bellwether for the dovish leanings in the European Central Bank, as he is considered a monetary-policy hawk. Investors are expecting the ECB to announce stimulus measures later this year.

The German 10-year government bond yield

TMBMKDE-10Y, -9.26%

  fell 3.3 basis points to negative-0.36%, while the French 10-year government bond yield

TMBMKFR-10Y, -1,231.43%

  slipped 4.6 basis points to negative-0.05%

The 10-year Italian government bond yield

TMBMKIT-10Y, -6.59%

  fell 10 basis points to 1.977%, falling below 2% for the first time since May 2018, Tradeweb data showed.

Source link