U.S. Treasury yields settled below 2% on Friday as the market awaited President Donald Trump’s meeting with his Chinese counterpart Xi Jinping on Saturday on the sidelines of the G-20 summit in Japan to discuss a potential path forward on their trade dispute.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -0.57% fell 5.1 basis point from Thursday’s close to 1.998%, while the 2-year note rate TMUBMUSD02Y, +0.25% shed 4 basis points to 1.737%. The 30-year bond yield TMUBMUSD30Y, +0.04% was lower by 3.9 basis point at 2.525%.
Yields started out higher on Friday, but dropped lower in afternoon trading, leaving the 10-year Treasury yield below the key psychological level of 2% for the second day this week.
For the quarter, yields on 10-year paper notched their largest quarterly decline since March 2016, according to Dow Jones Market data. It was the steepest one-quarter drop for 2-year yields since December 2008.
It has been a bullish week for other “haven” assets too.
Check ou t: Gold futures score largest monthly gain in 3 years
Read: Global Bond Markets Are So Crazy Right Now That Even 100-Year Bonds Are Selling, from Barron’s
What’s driving Treasurys?
Analysts have grown skeptical about the prospects for a major breakthrough on trade between the world’s two largest economies when Trump and Xi meet in Osaka, Japan on Saturday.
The consensus, however, is that Trump and Xi likely agree to dial back some of the hostilities, including with the U.S. suspending $300 billion of tariffs on Chinese goods in order to restart talks.
Trump said on Friday that he hoped the meeting would be “productive,” but also said he did not offer Xi a six-month reprieve on tariffs, according to a Reuters report.
Check out: G-20 preview: Facing faltering economies, Trump and Xi likely to agree to a cease-fire of trade war
J.P. Morgan analysts last month revised lower their year-end target for 10-year Treasury yields to 1.75% from 2.45%, with the expectation that the Federal Reserve would cut policy rates 50bp in the second half of the year.
Wall Street has the odds of an interest rate cut in July at 100%, according to the CME Group’s FedWatch.
What are market players are saying?
“We hope to get a lot more information on trade this evening and tomorrow, and more information on economic data from the IMF first thing next week,” said Guy Lebas, fixed-income strategist at Janney Montgomery Scott.
What else is on investors’ radar?
New government data on U.S. consumers showed that spending rose 0.4% in May for the third month in a row, suggesting the U.S. economy is still on solid ground even while growth has waned.
Incomes also increased 0.5% in May for the second month in a row, helping to boost household confidence. Inflation dropped to 1.5% in May from 1.6% in April, per the Federal Reserve’s 12-month PCE price gauge.
The Fed has a 2% inflation target, and is closely monitoring its progress as part of its rate-setting policy.
Other key data out on Friday flashed negative.
The University of Michigan’s consumer sentiment index fell in June to 98.2 from 100 a month earlier.
The Chicago PMI business baromoter fell to 49.7 in June from 54.2 in May, marking its first time in contraction in two years.
Read: Chicago PMI falls to 49.7 in June, first time in contraction territory in two years
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