U.S. Treasury yields settled lower again on Thursday as market participants awaited the G-20 Summit in Japan, in which U.S. and China trade tensions are poised to take center stage.
What are Treasurys doing?
The 10-year Treasury note yield
on Thursday dipped 4.1 basis points to 2.007%, the third-lowest of the year, while the 2-year note yield
fell 3.6 basis points to 1.741%. The 30-year bond yield
edged lower by 4.1 basis points to 2.524%, after opening higher in the morning.
The 10-year Treasury note yield has ended lower in 11 of the past 13 trading days.
What’s driving Treasurys?
Bond investors are waiting for President Donald Trump and Chinese counterpart Xi Jinping to meet at the end of the week, for any signs of progress on relieving U.S.-China trade tensions. Early morning reports suggested that the trading partners had laid down some terms ahead of the meeting, which is scheduled to take place on the sidelines of the summit.
But by afternoon, White House National Economic Council Director Larry Kudlow had splashed cold water on the reports, saying that no preconditions had been set ahead of the talks.
“Folks have to stop forecasting. Let’s see what happens at these talks,” Kudlow said, in an interview on Fox News.
U.S. stocks were slightly higher on Thursday, after losing ground on Wednesday as momentum faded from U.S. Treasury Secretary Steven Mnuchin’s positive comments on trade. The S&P 500 index logged a fourth day of losses.
Also on Thursday, San Francisco Fed President Mary Daily said it was “too early to know” if the central bank should cut rates in July, during an interview with Bloomberg Television.
“We had the report overnight that U.S. and China were a lot closer on an agreement,” said Tom di Galoma, a managing director of Treasurys trading at Seaport Global Securities.
But his expectations were low any major agreement to come from the meetings.
“The bottom line is that this isn’t necessarily just a trade or tariff issue,” di Galoma told MarketWatch in an interview. “It is probably deeper than that and includes National Security issues.”
That said, di Galoma also thinks any weakness in Treasurys could mean a buying opportunity, given there are fewer spots to find yield with the near $13 trillion pile of negative-yielding government debt globally.
Deutsche Bank put together this chart on how Gold prices have climbed as the universe of negative-yielding bonds have touched new records.
“Any kind of rise in yields will be met with demand from institutional investors, whether domestically -based or internationally-based,” di Galoma said of Treasurys.
In economic data, the pace of growth in the U.S. economy in the first three months of 2019 was left at 3.1%, revised government figures show, as stronger business investment offset a weaker increase in consumer spending.
The number of people who applied for unemployment benefits in late June jumped to the highest level in almost two months, though so-called jobless claims continued to remain extremely low by historical standards. Initial jobless claims, a rough way to measure layoffs, climbed by 10,000 to 227,000 in the seven days ended June 22, the government said Thursday. Economists polled by MarketWatch estimated new claims would total a seasonally adjusted 216,000.