Trade, Brexit hopes lift US yields to 1-1/2-week highs

NEW YORK: US Treasury yields rose on Wednesday to their highest in a week and a half, as hopes for a trade deal between China and the United States and a breakthrough for Brexit triggered a sell-off in the bond market.

Strong economic data in China and Europe eased worries about a global economic slowdown, reducing the safe-haven appeal of US government debt. But weaker-than-forecast US data limited selling in Treasuries.

"Today's it's about China and trade. It's been a risk-on day and it's hurt Treasuries," said Mary Anne Hurley, vice president of fixed income at D.A. Davidson in Seattle.

In late US trading, yields on benchmark 10-year Treasury notes were 2.5133 percent, up 0.03 percentage point from Tuesday. During the session, yields hit a 1-1/2 week peak of 2.524 percent.

Their premium over three-month bill rates grew to nearly 8.5 basis points from 4.5 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. Such an inversion has preceded every economic downturn for 50 years.

For now, investors focused on optimism for a successful outcome in trade talks between 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.

On Wall Street, the three major stock indexes moved higher with the S&P 500 gaining 0.14 percent.

British lawmakers voted on Wednesday to approve the first stage of legislation which would force Prime Minister Theresa May to seek a delay to Brexit to prevent the risk of leaving the European Union without a deal on April 12.

May and opposition leader Jeremy Corbyn met in a bid to obtain parliamentary approval for an orderly exit for Britain from the EU.

Upbeat overseas data also 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.

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.