US bond yields rise on trade, Brexit hopes

NEW YORK: US Treasury yields climbed to 1-1/2 week highs on Wednesday as hopes for a trade deal between China and the United States and a breakthrough for Brexit touched off a sell-off in the bond market.

Encouraging data in China and Europe soothed some worries about a global economic slowdown, reducing the safe-haven appeal of low-yield US government debt.

Weaker-than-forecast figures on US private jobs growth and services industry activities limited the selling in Treasuries.

"The market is looking for direction right now. People are waiting for the next shoe to drop," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co in New

York.

At 10:42 a.m. (1442 GMT), the yields on benchmark 10-year Treasury notes were 2.5062%, up 0.03 percentage point from Tuesday. They hit a 1-1/2 week peak of 2.524% earlier Wednesday.

Their premium over three-month bill rates grew to 8 basis points from more than 4 basis points late on Tuesday.

Last Thursday, 10-year yields fell below three-month rates for the first time since 2007, stoking fears of a recession. This inversion between the two yields preceded every economic downturn in the past 50 years.

For now, those fears were replaced by traders' optimism for a successful outcome in the latest round of trade talks between senior White House and Beijing officials.

A possible end to the trade fight between the world's two biggest economies will likely bolster stock prices and put more upward pressure on bond yields, traders and analysts said.

"If they could cut a deal, that would be positive for risky assets," Milstein said.

A meeting between UK Prime Minister Theresa May and opposition leader Jeremy Corbyn fed hopes for a breakthrough to reach a parliamentary approval of a deal for an orderly exit for Britain from the European Union.

In addition to those developments, upbeat overseas data lifted investor sentiment.

The Caixin/Markit services purchasing managers' index (PMI) rose to 54.4, the highest since January 2018.

Euro zone retail sales increased 0.4 percent in February, more than the 0.2 percent gain forecast among analysts polled by Reuters.

Wednesday's data on the US economy, however, were dour by comparison.

The Institute for Supply Management said its index on activity among US services industries fell to a 1-1/2 year low in March, while ADP reported the private sector added 129,000 workers last month, the fewest since September 2017.