logo
Plus   Neg
Share
Email

Optimism About Trade Talks Leads To Notable Drop By Treasuries

With traders continue to express optimism about U.S.-China trade talks, treasuries moved significantly lower during trading on Thursday.

Bond prices slid firmly into negative territory in morning trading and remained firmly in the red throughout the afternoon. Subsequently, the yield on the benchmark ten-near note, which moves opposite of its price, jumped by 6.9 basis points to 1.658 percent.

The drop by treasuries came as traders moved into riskier assets after President Donald Trump revealed he plans to meet with Chinese Vice Premier Liu He as part of high-level U.S.-China trade talks.

"Big day of negotiations with China. They want to make a deal, but do I? I meet with the Vice Premier tomorrow at The White House," Trump tweeted.

The tweet from Trump offset concerns generated by earlier reports suggesting Liu could leave Washington earlier than originally planned.

Adding to the optimism about the talks, Liu told Chinese state-run media Xinhua the Chinese delegation has come to the talks with "great sincerity and is willing to make serious exchanges with the U.S. on issues of common concern."

"On the basis of equality and mutual respect, China is willing to reach consensus with the U.S. through this round of consultations on issues of mutual concern to prevent further escalation and spread of friction," Liu said.

Traders are likely to remain focused on reports regarding the highly anticipated negotiations and any signs of progress or lack thereof.

As a result of the focus on the trade talks, traders largely shrugged off a usually closely watched report from the Labor Department showing U.S. consumer prices were essentially flat in the month of September.

The Labor Department said its consumer price index was unchanged in September after inching up by 0.1 percent in August. Economists had expected another 0.1 percent uptick.

Consumer prices came in unchanged as higher prices for shelter and food were offset by declines in prices for energy and used cars and trucks.

Excluding food and energy prices, core consumer prices crept up by 0.1 percent in September after rising by 0.3 percent for three straight months. Core prices had been expected to rise by 0.2 percent.

"The muted gain in core consumer prices in September underlines that even after the introduction of additional tariffs on Chinese imports, inflationary pressures are still well-contained," said Andrew Hunter, Senior U.S. Economist at Capital Economics.

"With wage growth leveling off and unit labor costs growth stable, we don't think core inflation will rise further from here," he added. "As a result, the Fed will remain focused on the incoming activity data, which we expect to prompt one more 25bp rate cut by year-end."

A separate report released by the Labor Department showed a modest decrease in first-time claims for U.S. unemployment benefits in the week ended October 5th.

Meanwhile, the Treasury Department revealed its auction of $16 billion worth of thirty-year bonds attracted average demand.

The thirty-year bond auction drew a high yield of 2.170 percent and a bid-to-cover ratio of 2.25, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.24.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Earlier this week, the Treasury revealed its auction of $38 billion worth of three-year notes attracted modestly below average demand, while its auction of $24 billion worth of ten-year notes attracted slightly above average demand.

News out of the trade talks is likely to remain in the spotlight on Thursday, overshadowing reports on import and export prices and consumer sentiment.

For comments and feedback contact: editorial@rttnews.com

Market Analysis

Follow RTT
>