Treasury yields on Friday mostly rose for the day, pushing government bonds to the best weekly gains in about a month as investors looked past bonds to riskier assets while digesting apparent progress in Sino-U.S. tariff negotiations.
What did yields do?
The 10-year Treasury yield TMUBMUSD10Y, +0.00% added 0.7 basis point to reach 2.666%, but booked a weekly gain of 3.4 basis points, according to Dow Jones Market Data. The two-year Treasury note yield TMUBMUSD02Y, +0.00% rose 2.5 basis point to 2.520%, adding to a weekly advance of 5.7 basis points. However, the 30-year Treasury bond yieldTMUBMUSD30Y, +0.00% fell 1.3 basis points to 2.996%, but recorded a weekly climb of 2.1 basis points.
All three government bond yield registered their largest weekly climb since Jan. 18.
Yields move in the opposite direction of bond prices.
What drove market moves?
In a statement issued Friday morning, the White House described weeklong talks between Beijing and Washington, which ended on Friday, as “detailed and intensive,” which led to “progress between the two parties.”
“Both sides will continue working on all outstanding issues in advance of the March 1, 2019, deadline for an increase in the 10 percent tariff [to 25%] on certain imported Chinese goods,” the statement read, while Chinese news agency Xinhua said ‘important progress’ had been made.
Meanwhile, President Donald Trump signed a budget deal to avoid another U.S. partial closure, but declared a state of emergency at the country’s southern border, potentially setting the stage for a fresh legal clash with Democrats who will oppose the action.
On Thursday, markets fixed-income markets moved sharply after a U.S. retail sales report for December showed the biggest one-month decline in about nine years, stoking fears of a recession and driving investors into haven bonds.
Federal Reserve Board Gov. Lael Braiard on the day those weak retail results were released said the data were a reminder of downside risks to the economy and that she was comfortable maintaining the Fed’s newfound wait-and-see stance on monetary policy. She also said the central bank, led by Chairman Jerome Powell, would end the unwind of its asset portfolio “later this year,” which appeared to take some of the air out of bond buying and support risk assets like stocks.
Read: Why the Fed may shift to buying Treasurys next year
What did analysts say?
“While global crosscurrents were the initial reason to trigger a ‘Powell put’, the combination of weak activity data and subdued inflation figures this week strengthened the case for a prolonged Fed pause. We estimate that if the Fed stays ‘put’ in 2019, as markets expect, this would provide a 0.3 [percentage point] growth buffer to real GDP in 2020,” wrote Lydia Boussour, senior economist, and Gregory Daco, chief U.S. economist at Oxford Economics, in a Friday research note.
“Put” refers to options that can be used to hedge against market coming losses.
What data were in focus?
The cost of imported goods fell in January for the third straight month, down 0.5% from December, led by lower oil prices.
The Empire State manufacturing index, which gauges the health of the New York state manufacturing sector rose 4.9 points in February to 8.8, above economists expectations of 7.6, according to a survey by Econoday.
U.S. industrial production fell in January for the first time in eight months, the Federal Reserve said.
The preliminary University of Michigan consumer sentiment index for February rebounded, with the index rising to 95.5 from 91.2 in January, which was the worst since November 2016. Economists polled by MarketWatch expected a 94 reading.
U.S. business inventories fell 0.1% in November, according to a report delayed by the partial government shutdown. Sales dropped 0.3% in the month. The ratio of inventories to sales was flat at 1.35, the Commerce Department said.