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U.S. Government-Bond Yields Rise After Trade Progress -- Update

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08/25/2020 | 05:44pm EDT

By Orla McCaffrey

Treasury yields rose Tuesday after progress on trade talks between the U.S. and China boosted hopes for the pandemic-battered U.S. economy.

The yield on the benchmark 10-year Treasury note closed at 0.680%, according to Tradeweb, up from 0.645% on Monday. The yield on the 30-year bond also rose, settling at 1.386%, from 1.349% the previous day.

The climb began after China and the U.S. said they were committed to executing a phase-one trade deal between the two countries. A summary of a meeting between trade representatives included discussion of "significant increases" in U.S. product purchases by China.

Other data released Tuesday painted a mixed picture of the economic recovery, showing that home-price growth was unchanged in June from the prior month and that consumer confidence fell for the second straight month in August.

The yield on the 10-year Treasury has traded within a narrow range in recent weeks, with investors confident that the Federal Reserve will continue to support the economy -- and fixed-income assets -- by holding short-term interest rates near zero and buying Treasurys. The next test for that view comes Thursday, when some investors expect Fed Chairman Jerome Powell to signal shifts to the central bank's approach to managing inflation.

"Every time he makes an appearance, or goes to Burger King, people expect him to talk about inflation," said Jim Vogel, interest-rates strategist at FHN Financial. "The rate direction they are taking is pretty clear, but the timing is unknown."

Signs the pandemic may be slowing in the U.S. also boosted yields Tuesday. New cases fell recently to their lowest level in more than two months, and data from trials of the Oxford coronavirus vaccine could be ready to be handed over to regulators this year, a scientist working on the vaccine said Tuesday.

Bond yields tend to rise when investors feel better about the economy, since quicker growth can lead to inflation, which erodes the purchasing power of bonds' fixed payments and can put pressure on the Fed to raise interest rates.

Write to Orla McCaffrey at orla.mccaffrey@wsj.com

 

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