Long bonds rally as Pelosi’s expected Taiwan trip rattles sentiment

SINGAPORE, Aug 2 (Reuters) – Treasuries rallied in Asia on Tuesday as nervousness that US Speaker Nancy Pelosi’s visit to Taiwan would intensify Sino-US tensions had investors buying safe assets such as bonds.

Longer-dated Treasuries were already well bid since weakening US economic data has markets expecting a slowdown in both US growth and the pace of interest rate hikes.

Benchmark 10-year Treasuries built on those gains, with yields falling as much as 9 basis points to 2.5160%, a four-month low. Twenty-year and 30-year yields also fell a few points before steadying.

Two-year yields held at 2.8260%.

House of Representatives Speaker Pelosi was expected to arrive in Taipei on Tuesday, people briefed on the matter said. China has repeatedly warned against her visit and Asian financial stock markets fell, especially in China.

“The back end is more a pure safe haven,” said ING’s Asia economist Rob Carnell, though adding it was both sentiment and the US economic outlook that were supporting the market.

“Not only have you got peak rate hikes, but you’ve got peak inflation as a theory which has been gathering some pace.”

Last month the Federal Reserve said incoming economic data would be guiding its policy, which investors took to mean that the pace and size of hikes would drop.

US manufacturing activity then dipped to its lowest since June 2020 last month, data released on Monday showed and a slowdown in input price rises offered a hint of a peak in inflation.

(Reporting by Tom Westbrook; Editing by Shri Navaratnam)