Bond Report: Treasury yields string back-to-back climb as progress in shutdown talks buoys stocks

Treasury prices fell Tuesday, pushing yields higher for a second straight session, as a tentative agreement to avert another partial government closure boosted appetite for assets perceived as risky and away from so-called havens like government paper.

The 10-year Treasury note yield TMUBMUSD10Y, +0.91% was up 2.3 basis points to 2.684%, while the two-year note yield TMUBMUSD02Y, +0.65% picked up 1.6 basis points to 2.506%. The 30-year bond yield TMUBMUSD30Y, +0.80%  rose 2.3 basis points to 3.0231%. Bond prices move inversely to yields.

Congressional lawmakers said they reached a deal Monday night that would keep the government open after the end of the week. Republican negotiators agreed to a border-security agreement that would allocate $1.375 billion for border fencing between the U.S. and Mexico.

Still, it’s unclear if President Donald Trump will sign the agreement, as the funds for the border fencing fall short his $5.7 billion demand. The deal came together just before the president said at a rally in Texas that the U.S. would build the wall regardless of shutdown negotiations. On Tuesday, Trump said he wasn’t satisfied with the details of the border-security agreement, and didn’t rule out shuttering the government.

“Today’s activity will be a direct reflection of Trump’s response to the U.S. government shutdown deal,” wrote Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities.

See: Lawmakers reach border-security deal that would avert shutdown

U.S. equities rose on the back of optimism around the potentially averted shutdown and on continued hopes of a U.S.-China tariff pact, with talks under way in Beijing this week. U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin will meet with Chinese Vice Premier Liu He at the end of the week. The Dow Jones Industrial Average DJIA, +1.49%  and S&P 500 index SPX, +1.29%   traded higher.

“A trade deal would help the global growth outlook, and from a headline point of view, it would be good for risk assets,” said Collin Martin, director of fixed income at the Schwab Center for Financial Research.

In economic data, the NFIB small-business optimism index fell to 101.2 in January, from 104.4 in the previous month, the lowest reading since Trump’s election in November 2016. The report partly cited the government shutdown for diminishing confidence and stoking uncertainty. More importantly, investors are looking ahead to January’s consumer-prices data on Wednesday, with economists polled by MarketWatch expecting an increase of 0.1%.

Investors are grappling with a heavy docket of speeches from the Federal Reserve. Fed Chairman Jerome Powell said the probability of a recession was not high. Cleveland Fed President Loretta Mester will speak on monetary policy at Xavier University at 6:30 p.m., after which Kansas City Fed President Esther George will talk in Kansas City at 7:30 p.m.

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