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NEW YORK – US Treasuries were moderately bid on Monday, with yields edging lower and trading held within tight ranges amid improving risk sentiment as the China trade outlook appeared less dire than it did weeks earlier.

Investors remained broadly cautious, however, as the federal government stayed shuttered for a 20th consecutive day, with no real compromise expected from either Republicans or Democrats.

But White House economic adviser Kevin Hassett said on Monday the shutdown could likely end this week. He said his “friends in the Senate” believed it was “bad optics for Democrats to open the government before the ‘No Kings’ rallies and that now there’s a shot that this week things will come together.”

In afternoon trading, the benchmark 10-year yield slipped 1.9 basis points (bps) to 3.989%, while 30-year bond yields drifted lower by 2.3 bps to 4.579%.

On the shorter end of the curve, US two-year yields, which reflect interest rate expectations, were flat at 3.469%.

“I don’t see any reason that anybody is going to magically end this lockdown and so the longer this goes on, the more uncertain the market gets,” said Byron Anderson, head of fixed income, at Laffer Tengler Investments in Scottsdale, Arizona.

“But I think the bond market is pretty well behaved right now and we really haven’t seen panic in anything. Eventually we’re going to see problems from the lockdown, and I think the Federal Reserve will continue to cut, and it’s needed at the margin.”

The Fed is expected to cut two more times this year, with 25-bp cut baked in for the October meeting, according to LSEG calculations.

China sentiment, in the meantime, has also improved, adding to the risk-on tone overall.

US Treasury Secretary Scott Bessent said on Friday he expects to meet this week with Chinese Vice Premier He Lifeng in Malaysia to try to forestall an escalation of US tariffs on Chinese goods that President Donald Trump said was unsustainable.

Trump also confirmed he would meet with Chinese President Xi Jinping in two weeks in South Korea and expressed admiration for the Chinese leader.

“There is better sentiment on China and trade that it’s not going to spiral into a nightmare,” said Stan Shipley, managing director and fixed income strategist at Evercore ISI.

Investors are also looking forward to the release of the September Consumer Price Index report on Friday that should give some perspective as to where inflation is headed.

“While the inflation data will contribute to the Fed’s messaging at its upcoming meeting, it won’t change the outcome of the rate decision,” wrote BMO analysts in a research note.

“CPI won’t deter a rate cut this month even if the core measure prints at the top of the range of economist estimates,” the bank said. The consensus forecast for core CPI last month was 0.3%, unchanged from August, an estimate that reinforces “the limited inflationary fallout from the trade war thus far,” BMO said.

In other parts of the bond market, the yield curve bull flattened on Monday, with the gap between US two-year and 10-year yields at 52.4 bps, from 55 bps late Friday.

A bull flattening curve refers to a scenario in which long-term interest rates are falling faster than those on the short end, which reflects either a flight to safety or a lowering of inflation expectations. In any case, a bull flattener often precedes an interest rate cut from the Fed.

(Reporting by Gertrude Chavez-Dreyfuss; Editing by Andrea Ricci and Nick Zieminski)

 

NEW YORK – US Treasury yields rose on Friday as concerns about rising trade tensions with China and the credit quality in regional banks waned, but the yield on the benchmark 10-year note was still poised for a third straight week of declines.

Yields have steadily retreated since last Friday, when US President Donald Trump threatened to raise tariffs on Chinese goods to triple digits, followed this week by both countries charging additional port fees on ocean shipping firms and by US officials criticising China’s expanded rare earth export controls.

On Thursday, additional concerns regarding regional banks and the credit market further dented risk appetite after Zions Bancorporation said it would take a charge-off on two commercial and industrial loans. That came on the heels of bankruptcies by auto parts maker First Brands and subprime lender Tricolor.

But fears over trade tensions appeared to be allayed somewhat after Trump said his proposed tariff on goods from China would not be sustainable and confirmed he would meet with Chinese President Xi Jinping in two weeks in South Korea despite raising doubts last week that the meeting would happen.

In addition, concerns over contagion among the regional banks eased after solid earnings from several names in the sector. The KBW regional bank index rallied more than 1%, taking pressure off the broader equities market.

Rob Haworth, senior investment strategist at US Bank Wealth Management in Seattle, said risk appetite had already diminished with the possibility that trade tensions between China and the US could escalate, and was dampened further as worries mounted over regional banks.

“The market is walking some of that back and trying to evaluate how serious this credit fear may really be – is it a one-off? Is it more persistent? And so I think the market’s evaluating that along with the China issue, and we’ve got another couple of weeks of that,” he said.

The yield on the US 10-year Treasury note was 2.3 basis points higher at 3.999% after hitting a 6-1/2 month low of 3.936% earlier in the session. It is down 5 basis points on the week and nearly 19 basis points during its three-week decline.

The yield on the 30-year bond gained 1.6 basis points to 4.599%.

Yields have also been moving lower as recent comments from Fed officials have cemented expectations for a rate cut by the central bank at its upcoming policy meeting at the end of the month.

The two-year US Treasury yield, which typically moves in step with interest rate expectations, was up 3.1 basis points at 3.457% after earlier falling to 3.376%, its lowest since August 26, 2022. But the yield was down more than 6 basis points on the week and on pace for a third straight weekly fall.

Federal Reserve Bank of St. Louis President Alberto Musalem suggested Friday he will support a central bank interest rate cut at the end of the month, while warning it is important for the Fed not to go too far with easing the cost of credit amid still unsettled inflation risks.

Markets have fully priced in a rate cut of at least 25 basis points at the Fed’s October meeting and a 1% chance for an outsized 50 basis point cut, according to CME’s FedWatch Tool.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 54 basis points.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.322% after closing at 2.318% on Thursday, its lowest since June 30.

The 10-year TIPS breakeven rate was last at 2.273%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak; Editing by Kirsten Donovan and Edmund Klamann)

 

NEW YORK – US 10-year Treasury yields were little changed on the session, bouncing off earlier lows as investors awaited developments on the trade situation between the US and China and digested comments from several Federal Reserve officials.

Yields have moved sharply lower since Friday, when US President Donald Trump threatened to raise tariffs on Chinese goods to triple digits, followed this week by both countries charging additional port fees on ocean shipping firms and criticism by US officials of China’s expanded rare earth export controls.

Investors have also been grappling with a lack of economic data due to the ongoing government shutdown.

“Until last Friday, the market seemed to have moved on from trading the potential fallout from the trade war and did instead prefer to focus on the implications from the government shutdown, but now I think that’s what the market’s reacting more to is the escalation in the trade war once again when that wasn’t expected,” said JoAnne Bianco, partner and senior investment strategist at BondBloxx Investment Management in Chicago.

The yield on the benchmark US 10-year Treasury note fell 0.1 basis point to 4.044% after hitting a session low of 4.009%.

Yields pared declines after Federal Reserve Governor Christopher Waller said he would like a 25 basis point cut at the central bank’s October meeting due to the mixed labor market readings but sees a slower path of cuts should the job market speed up or GDP holds up.

Markets are currently pricing in a 95.7% chance for a 25 basis point cut at the Fed meeting later this month, according to CME’s FedWatch Tool.

“The movement that we’ve seen in Treasury yields has certainly factored in a couple more rate cuts,” said Bianco.

The yield on the 30-year bond shed 0.2 basis point to 4.637%.

Despite the government shutdown, some economic data was still being released. The Philadelphia Federal Reserve Bank said its business activity index dropped to -12.8 this month from 23.2 in September and below the 8.5 estimate of economists polled by Reuters. A reading below zero indicated contraction.

In addition, The National Association of Home Builders/Wells Fargo Housing Market index showed homebuilder sentiment jumped to a six-month high in October amid hopes that declining mortgage rates would stimulate demand for housing.

A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 53.2 basis points.

The two-year US Treasury yield, which typically moves in step with interest rate expectations for the Fed, edged up 0.4 basis points to 3.51% after falling to 3.483% on the session.

Aside from Waller, Richmond Fed president Thomas Barkin said consumers continue to spend given low unemployment and wage gains, but are more constrained than during the pandemic years while Fed Governor Stephen Miran said that cuts of 25 basis points are too slow of a pace.

The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.353% after closing at 2.351% on Wednesday, its lowest since July 2.

The 10-year TIPS breakeven rate was last at 2.302%, indicating the market sees inflation averaging about 2.3% a year for the next decade.

(Reporting by Chuck Mikolajczak, Editing by Nick Zieminski)