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TREASURIES-Yield curve steeper on trade deal reassurance

Credit: REUTERS/AKHTAR SOOMRO

Longer-term U.S. Treasury yields were higher Tuesday and a closely watched part of the yield curve steepened as traders moved into riskier asset classes on reassurance that a U.S.-China trade deal would continue.

By Ross Kerber

Aug 25 (Reuters) - Longer-term U.S. Treasury yields were higher Tuesday and a closely watched part of the yield curve steepened as traders moved into riskier asset classes on reassurance that a U.S.-China trade deal would continue.

The benchmark 10-year US10YT=RR yield was up 5.5 basis points at 0.7014% in morning trading, the first time it has traded above 0.7% since Aug. 17.

Eric Jussaume, director of fixed income at Cambridge Trust, said the movement reflected investors taking their cue from equity markets, which opened strongly, and moving out of the safe-haven U.S. government debt.

"It's a risk-on trade environment, so money is coming out of Treasuries," he said. Investors may also be expecting more inflation, he said, expectations that could be clarified when Federal Reserve leaders offer guidance at meeting later this week.

Top U.S. and Chinese trade officials have reaffirmed their commitment to a Phase 1 trade deal, which has seen China lagging on its obligations to buy American goods, giving a boost to financial markets on Tuesday.

The S&P 500 opened at a record high on Tuesday on the trade news, adding to market optimism over progress in developing treatments and vaccines for COVID-19.

Investors were awaiting the results of Treasury auctions due later on Tuesday, including the scheduled sale of $50 billion of 2-year notes US2YT=RR.

A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on 2- and 10-year Treasury notes US2US10=RR, seen as an indicator of economic expectations, was at 54 basis points, about 4 basis points higher than Monday's close and well above its recent low of 33 basis points reached on July 24.

The 2-year US2YT=RR U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 1.3 basis points at 0.1656% in morning trading.

August 25 Tuesday 9:53AM New York / 1353 GMT

Price

Current Yield %

Net Change (bps)

Three-month bills US3MT=RR

0.1

0.1014

-0.003

Six-month bills US6MT=RR

0.1175

0.1195

-0.003

Two-year note US2YT=RR

99-236/256

0.1656

0.013

Three-year note US3YT=RR

99-204/256

0.1936

0.019

Five-year note US5YT=RR

99-182/256

0.3091

0.029

Seven-year note US7YT=RR

99-28/256

0.506

0.046

10-year note US10YT=RR

99-68/256

0.7014

0.055

20-year bond US20YT=RR

98-192/256

1.1956

0.064

30-year bond US30YT=RR

99-40/256

1.4096

0.061

DOLLAR SWAP SPREADS

Last (bps)

Net Change (bps)

U.S. 2-year dollar swap spread

6.75

0.25

U.S. 3-year dollar swap spread

5.75

-0.25

U.S. 5-year dollar swap spread

4.00

-0.25

U.S. 10-year dollar swap spread

-1.50

-0.50

U.S. 30-year dollar swap spread

-38.00

0.00

(Reporting by Ross Kerber in Boston; editing by Jonathan Oatis)

((ross.kerber@thomsonreuters.com; (617) 856 4341; Reuters Messaging: Ross.Kerber.Reuters.com@Reuters.net))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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