US yields inch higher in rangebound trading; Fed in focus

The trend so far this week has been to buy Treasuries and push yields lower amid increasing economic. US 10-ye
24 Oct, 2019
  • The trend so far this week has been to buy Treasuries and push yields lower amid increasing economic.
  • US 10-year and two-year note yields also hit key technical resistance that thinned buying.
  • The US Treasury's auction of $32 billion in seven-year notes, the final coupon supply for October.

US 10-year and two-year note yields also hit key technical resistance that thinned buying, analysts said.

The trend so far this week has been to buy Treasuries and push yields lower amid increasing economic, political, and global uncertainty.

Issues surrounding Britain's exit from the European Union, the impeachment inquiry into US President Donald Trump and mounting evidence of US economic weakness have dampened Treasury yields.

Analysts noted that even the one bright spot, Washington's "phase 1" deal with Beijing on trade matters, has yet to be put to paper.

That said, Kim Rupert, managing director of global fixed income at Action Economics in San Francisco, said things are not dire as some market participants believe.

"A Fed cut is priced in next week, but the market seems to be getting cold feet on further easing down the road," Rupert said. "The economy doesn't look that bad. There are chances of a US-China trade deal and Brexit may be resolved, so a lot of the risks have diminished."

Recent US economic numbers have been mixed, suggesting some weakening in the economy, but not a recession.

Thursday's data showed new orders for key US-made capital goods fell more than expected in September and shipments declined, while sales of new US single-family homes also slid in September.But US initial jobless claims were better than expected.

In afternoon trading, US 10-year note yields rose to 1.771pc from 1.759pc late on Wednesday.

Yields on 30-year bonds were up at 2.267pc, from 2.251pc on Wednesday.

On the short-end of the curve, US two-year yields edged up to 1.587pc, from Wednesday's 1.582pc.

On Thursday, the US Treasury's auction of $32 billion in seven-year notes, the final coupon supply for October, showed decent demand, after two strong sales of two-year and five-year notes this week.

The seven-year note picked up a high yield of 1.657pc, much lower than the expected rate at the bid deadline.

There were $78.6 billion in bids, resulting in a 2.46 bid-to-cover ratio, a gauge of demand, which slightly lower from September's 2.49 cover but modestly above the 2.44 average.

"Though rates remain historically rich, they are nevertheless palatable, considering the likelihood of a Fed easing next week, along with lingering growth worries, and expectations for ongoing accommodation from most major central banks that should limit upside pressures," Action Economics said in its blog after the seven-year note auction.

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