Bond Report: Treasury yields push higher after China moots ‘partial’ trade deal

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U.S. Treasury yields headed higher on Wednesday after reports said Chinese officials were amenable to a “partial” trade deal, stirring a stock-market surge and putting bonds under pressure.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +1.78%   picked up 2.9 basis points to 2.568%, while the 2-year note rate TMUBMUSD02Y, +0.55%   was up 1.4 basis points to 1.439%. The 30-year bond yield TMUBMUSD30Y, +1.47%   rose 2.4 basis points to 2.066%.

What’s driving Treasurys?

Reports said China was open to a limited trade resolution with the U.S., according to Bloomberg News on Wednesday, citing people with direct knowledge of tariff talks. A separate report from the Financial Times (paywall) indicated that China had offered to increase annual purchases of soy beans to 30 million tons, from the current 20 million tons.

Bolstered hopes for even a partial deal to the U.S.-China tariff spat boosted investor sentiment. Futures for the S&P 500 SPX, -1.56%   and the Dow Jones Industrial Average DJIA, -1.19%   point to a higher open for Wall Street, after logging a more than 1% percentage loss on Tuesday.

See: U.S.-China Trade Talks Keep Getting More Complicated. That’s Not Good for Investors

The Federal Reserve will garner some attention ahead of the release of the minutes from its September meeting of the Federal Open Market Committee at 2 p.m. Eastern. Last month, the central bank cut its benchmark interest rate by a quarter point, for the second time this year.

Kansas City Fed President Esther George and Fed Chairman Jerome Powell are set to speak later at 11 a.m. on Wednesday.

An auction of 10-year U.S. Treasury notes later in the afternoon could also influence trading for government paper as broker-dealers make room for the fresh wave of debt supply.

What did market participants’ say?

“Treasury prices are softer due to China’s willingness to a partial trade deal with the U.S.,” said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.

But “it is likely that the Trump administration could very well indicate they do not want a partial trade deal with China. If that happens, a “risk-off” trade will take place,” said di Galoma.

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