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Yields rise on report Britain, EU close to Brexit deal

Hopes of Brexit deal boosts risk appetite Optimism on US-China trade deal fades Fed seen likely to cut ra
15 Oct 2019
  • Hopes of Brexit deal boosts risk appetite
  • Optimism on US-China trade deal fades
  • Fed seen likely to cut rates later this month

NEW YORK: US Treasury yields rose to a three-week high on Tuesday on a report that British and European Union negotiators were close to a deal for Britain to exit the European Union, spurring an increase in risk taking and reducing demand for safe haven debt.

Bloomberg News reported that negotiators were closing in on a draft deal, with hopes an agreement will be reached by midnight.

Two EU officials told Reuters, however, that any discussion that the two sides are close to agreeing to a text of a Brexit deal is "premature."

Benchmark 10-year yields rose as high as 1.773%, the highest since Sept. 20, and up from 1.753% late Friday. The bond market was closed on Monday for the Columbus Day holiday.

The news overturned an earlier rally in Treasury prices, as investors pared back expectations that the United States and China are close to reaching an agreement to end their trade war.

Reports of a "Phase 1" trade deal between the United States and China last week increased risk appetite. However the dearth of details around the agreement has since curbed this enthusiasm.

US Treasury Secretary Steven Mnuchin said on Monday that an additional round of tariffs on Chinese imports will likely be imposed if a trade deal with China is not reached but added that he expected the agreement to go through.

"Any good news was going to bring a big reaction and the idea that the US sort of oversold the accomplishment wasn't a complete surprise either, and was perhaps factored in to some of the reaction last week," said Jim Vogel, an interest rate strategist at FTN Financial in Memphis, Tennessee.

Retail sales data on Wednesday is the next major economic focus and will be evaluated for the strength of US consumer confidence.

The Federal Reserve is expected to cut rates when it meets on October 29-30 though Fed policymakers are divided on whether further cuts are needed for the economy.