NEW YORK (Reuters) – US government bonds rose on Thursday with 30-year yields climbing from record lows, as hopes of US-China trade talks and a bleak seven-year note auction cooled the recent torrid surge in the bond market.
FILE PHOTO: A specialist trader works on his floor on the New York Stock Exchange (NYSE) floor in New York, USA, August 2, 2019. REUTERS / Brendan McDermid
Part of the yield curve remained inverted with a negative gap between two- and 10-year returns US2US10YT = RR of -2.9 basis points, little changed during the day. The yield curve has been reversed before each US recession in the last 50 years.
China's Ministry of Commerce on Thursday said Beijing and Washington are discussing the next round of face-to-face trade talks scheduled in September.
"The most important thing at the moment is to create the necessary conditions for both sides to continue the negotiations," said Commerce Department spokesman Gao Feng during a weekly briefing, adding that China negotiated "solemn representation" with the United States.
China's latest announcement reduced bids that are safe havens for treasuries, German funds and large government debt, analysts and investors said.
"If you take away the trade war, you take away the worries," said Brent Schutte, chief investment strategist with Northwestern Mutual Wealth Management Co. RR rose to 1.5063%, up 3.8 basis points from Wednesday. The interest rate on 30-year bonds US30YT = RR rose to 1.9727%, rising from a record low of 1.905% affected Wednesday.
Investors are waiting for what the Federal Reserve would do to counter the risk of a possibly protracted trade battle between the world's two largest economies.
Interest futures implied traders have positioned for the Fed to lower interest rates at its upcoming policy meeting in September, following a July interest rate cut, which was the first since 2008, according to CME Group's FedWatch program.
Treasury returns extended the increase following a $ 32 billion auction of seven-year debt, with overall bidding being the weakest since this security debuted more than ten years ago. The seven-year note sale marked a disappointing end to this week's $ 113 billion in fixed-rate government debt.
Treasury Secretary Steven Mnuchin told Bloomberg News late Wednesday that the possibility of issuing ultra-long US bonds is "under very severe scrutiny" by the Trump administration.
J.P. Morgan released a survey Thursday that showed more investors are open to owning an ultra-long bond than two years ago, but a majority still prefers the Treasury to introduce a 20-year collateral over one that matures over 30 years.
Reporting by Gertrude Chavez-Dreyfuss and Richard Leong; Editing by Bernadette Baum and Leslie Adler