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Treasuries Move Notably Lower Amid Renewed Optimism About Trade Talks

With traders intensely focused on the upcoming U.S.-China trade talks, treasuries showed a notable move to the downside over the course of the trading session on Wednesday.

Bond prices moved steadily lower in morning trading before closing firmly in negative territory. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 5.2 basis points to 1.589 percent.

The weakness among treasuries came after a report from Bloomberg News said China is still open to reaching a partial trade deal with the U.S.

An official with direct knowledge of the talks told Bloomberg that negotiators aren’t optimistic about securing a broad agreement to end the U.S.-China war but said China would accept a limited deal as long as President Donald Trump does not impose any more tariffs.

In return, the official told Bloomberg, Beijing would offer non-core concessions like purchases of agricultural products without giving in on major sticking points.

The positive reaction to the report reflects the intense focus on the next round of high-level trade talks set to begin on Thursday.

Treasuries remained firmly negative after the minutes of the Federal Reserve’s September monetary policy meeting revealed a few participants expressed concerns that the markets expect more interest rate cuts than are appropriate.

The minutes said those participants felt it might become necessary for the Fed to seek a better alignment of market expectations regarding the path of rates with policymakers’ own expectations.

“Several participants suggested that the Committee’s postmeeting statement should provide more clarity about when the recalibration of the level of the policy rate in response to trade uncertainty would likely come to an end,” the Fed said.

CME Group’s FedWatch Tool currently indicates markets widely expect a 25 basis point rate cut at the Fed’s next meeting later this month and a 45.3 percent chance for yet another 25 basis point rate cut at the December meeting.

The Fed minutes noted that most participants believed that the 25 basis point rate cut announced after the September meeting was appropriate, although there was notable dissent.

Meanwhile, traders largely shrugged off the results of the Treasury Department’s auction of $24 billion worth of ten-year notes, which attracted slightly above average demand.

The ten-year note auction drew a high yield of 1.590 percent and a bid-to-cover ratio of 2.43, while the ten previous ten-year note auctions had an average bid-to-cover ratio of 2.41.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Looking ahead, the Treasury is due to announce the results of its auction of $16 billion worth of thirty-year bonds on Thursday.

Any news out of the first day of U.S.-China trade talks is likely to claim the spotlight on Thursday, however, with reports about the negotiations likely to overshadow readings on consumer prices and weekly jobless claims.

The material has been provided by InstaForex Company – www.instaforex.com