U.S. Treasury yields climbed on Thursday, after minutes from the European Central Bank’s September meeting highlighted rifts within its policy-making committee, casting doubt on further easing and sparking a selloff in European government paper.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, +5.00% climbed 6.4 basis points to 1.649%, while the 30-year bond yield TMUBMUSD30Y, +3.43% was up 6.1 basis points to 2.146%. The 2-year note rate TMUBMUSD02Y, +4.41% rose 4.6 basis points to 1.520%.
The 10-year German government bond yield TMBMKDE-10Y, +14.84% surged 8 basis points to negative 0.477%, around a three-week high.
What’s driving Treasurys?
Minutes of the ECB Governing Council’s last meeting in September showed that policy makers agreed on the need for further easing, but the decision to resume monthly asset purchases — the centerpiece of its quantitative easing program — proved highly contentious.
Investors also monitored developments on U.S.-China trade policy after President Donald Trump said Thursday he plans to meet Friday with Chinese Vice Premier Liu He. His announcement boosted appetite for risky assets, such as stocks, at the expense of U.S. government paper.
Conflicting reports over the likelihood of a deal whipsawed the bond market in Asian and European trading hours. Some reports suggested lower-level talks earlier this week had made no headway on critical issues, and that the Chinese delegation’s visit was cut short. Yet Bloomberg News reported that the White House could put in place a currency pact and suspend tariff increases that are set to take effect next week.
This comes as Liu meets with Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin on Thursday in Washington.
The U.S. consumer-price index for September was unchanged. Economists polled by MarketWatch expect consumer prices to rise 0.1%. In other data, weekly jobless claims fell in early October. Earlier this week, a data release showed U.S. producer prices fell 0.3% in September, one of the earlier indications that price pressures may be waning.
Analysts said an auction for $16 billion of 30-year bonds drew sufficient demand, after broker-dealers in the morning had pushed yields higher to make room for the fresh influx of debt supply as part of the “concession” process.
What did market participants’ say?
“The inflation numbers are humdrum, it doesn’t materially change the outlook for the Fed and there’s nothing really there to change our view of the easing bias that the Fed has had,” said Steve Johnson, senior portfolio manager at SVB Asset Management, in an interview with MarketWatch.
“Christine Lagarde’s first task as new ECB president will be to urgently fix the rift. As long as it remains, we do not expect any imminent additional easing measures from the bank, even if the economic outlook gets worse,” wrote Carsten Brzeski, chief economist for ING Germany.