Long-term US yields decline on mixed safe-haven demand

NEW YORK – US Treasury long-term yields declined on Tuesday, reversing some of Monday’s bond selloff, as fears that President Donald Trump’s trade policies could trigger a US economic slowdown provided some demand for US government bonds.

Yields, which move inversely to prices, had jumped on Monday as Trump’s calls to remove Federal Reserve Chair Jerome Powell caused market concerns over US economic stability and institutional strength. While those worries continued to agitate markets on Tuesday, bonds benefited from some safe-haven demand due to continued fears of an impending hit to US economic activity because of Trump’s tariffs on key US trade partners.

“You have a push and pull dynamic,” said Nathan Thooft, chief investment officer and senior portfolio manager at Manulife.

“You have forces that are potentially negative for Treasuries, as in higher yields driven by the US losing some of its glamour and glitter [that come from] … being the primary if not sole safe haven, but at the same time Treasuries are still used inside the US as well as by many people outside the US, as a source of safety,” he said.

Tuesday’s session, light on economic data, saw investors focusing on remarks from Fed officials after Trump in recent days accused the Fed chair of being slow to ease rates and hinted that he might try to remove him.

The attacks on Fed chair Powell were “undermining what little (market) confidence still existed out there,” said Dean Smith, chief strategist and portfolio manager at FolioBeyond.

Federal Reserve Bank of Philadelphia President Patrick Harker said trust in the central bank was one of its greatest powers. This credibility has built up over time “by being politically independent and as objective as human beings can be,” he said. Minneapolis Fed President Neel Kashkari said the Fed’s monetary policy independence was foundational and the key to better economic outcomes.

The attacks on the Fed could exacerbate existing concerns over Trump’s erratic policymaking and its impact on foreign investor appetite for Treasuries, analysts said.

“With increasing rhetoric from the administration admonishing the Fed to cut rates and the markets entertaining intensifying discussions about the possibility of replacing the Fed chair, we don’t expect a rush back into the market from abroad,” BNY’s Americas Macro Strategist John Velis said in a note. “The haven status of such assets is increasingly in question.”

The 10-year Treasury term premium, a measure of the compensation investors demand for the risk of holding long-dated US government debt, rose to 0.84 basis points on Monday, its highest level since 2014, according to the latest available data by the Federal Reserve Bank of New York.

Benchmark 10-year yields were last at 4.391%, about one and a half basis points lower than Monday, while 30-year yields declined by about three basis points to 4.881%. Two-year yields were last at 3.809%, up from 3.752% on Monday.

The closely watched yield curve that plots two-year yields against 10-year yields flattened to 58 basis points, after hitting an over three-year high of about 65 basis points on Monday. That curve has been steepening meaningfully over the past few weeks, suggesting investors anticipate high interest rates over the long term, following an initial period of monetary policy easing.

On Tuesday, the Treasury sold USD 69 billion in two-year notes, part of a total of USD 183 billion in Treasury issuance this week.

The two-year notes were sold with a high yield of 3.795%, which was nearly half a basis point above where the market was at the time of bidding, in a sign investors demanded higher compensation to absorb the debt sale.

(Reporting by Davide Barbuscia; Editing by Andrea Ricci)