Bond Report: Treasury yields turns lower as long-dated bonds stay anchored

Treasury yields fell Friday as simmering trade tensions and speeches from the Federal Reserve helped to buoy demand for long-dated bonds.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -0.26%   was down 0.9 basis point to 2.844%, on pace to end slightly higher than last week’s close at 2.831%.

The 2-year note yield TMUBMUSD02Y, -0.46%   fell 0.8 basis point to 2.586%, while the 30-year bond yield TMUBMUSD30Y, -0.31%   slipped 0.8 basis point to 2.942%.

Bond prices move in the opposite direction of yields.

What’s driving markets?

Treasury yields have fallen this week on trade concerns when the U.S. this week released its list of tariffs on $200 million in Chinese imports, keeping up the trade spat between the two economic powerhouses and stoking appetite for haven assets like U.S. government paper. Yet in the face of intensifying trade tensions between U.S. and other major economies, several speeches by senior Fed officials have confirmed the central bank’s intent to maintain its rate-hike path, helping to flatten the so-called yield curve by pushing up short-term rates faster than longer-term rates.

Read: 5 key ways Wall Street and economists think about the yield curve

The yield curve, otherwise seen as the spread between short-dated yields and long-dated yields, has narrowed on combined expectations for continued Fed tightening and an uptick in demand for haven investments. Inflows into U.S. bond funds and exchange-traded funds rose to $4.99 billion this week, the highest level since April, EPFR data shows.

The yield gap between the 2-year note and the 10-year note has thinned to 26 basis points, or 0.26 percentage points, from 30 basis points at the start of the week.

See: 5 key ways Wall Street and economists think about the yield curve

President Donald Trump is on his first official visit to the U.K. After his arrival at Chequers, the U.K. prime minister’s country house, Trump said Britain’s chances of a trade deal with the U.S. could be torpedoed by Prime Minister Theresa May’s approach to Brexit negotiations. Market participants have sought clarification on details of May’s vision for a “soft Brexit” where the U.K. would remain in the European Union’s custom union, as the deadline to leave the European Union looms.

Read: Trump rips Theresa May, says ‘soft’ Brexit would ‘kill’ any future U.S.-U.K trade deal

Atlanta Fed President Raphael Bostic will speak at 12:30 p.m. as part of a town hall chat in Falls Church, VA. The central bank will also release its semiannual monetary policy report, ahead of the two-day Humphrey-Hawkins hearing starting on July 17 where Fed Chairman Jerome Powell will testify in front of Congress.

What did market participants say?

“The economic implications are that the pound is weaker this morning, and a shadow has been cast on the chances of a trade agreement between the United States and Britain under the Trump administration. Odds of the prime minister’s Chequers plan being implemented successfully as an alternative to a “hard” Brexit have been reduced,” said Carl Weinberg, chief global economist for HFE Economics, in a note.

What else is on investors’ radar?

On the data front, traders are expecting the University of Michigan’s consumer sentiment data at 10 a.m. Eastern. While, import prices fell by 0.4% in June.

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