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Treasury yields moved higher to start the holiday-truncated week on Monday as a selloff in European government debt spilled over into U.S. bond markets.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, +2.85% rose 4.8 basis points to 1.921%, while the 2-year note rate TMUBMUSD02Y, +1.51% was up by a more muted 1.6 basis points to 1.605%.
The widening yields between the two maturities steepened a key gauge of the so-called yield curve to around 32 basis points, around its most positive levels this year. A steeper curve can indicate brewing expectations for a bump in economic growth and inflationary pressures.
The 30-year bond yield TMUBMUSD30Y, +2.89% climbed 5.6 basis points to 2.366%. Bond prices move in the opposite direction of yields.
What’s driving Treasurys?
U.S. Treasurys took their cue from overseas as investors ditched German government bonds, pushing its benchmark rate to its highest level since late May. Haven assets have been on the backfoot since the agreement of a phase one U.S.-China trade deal, which has helped boost forecasts for global growth.
Analysts have pointed to the anemic international economy for driving bond buyers to U.S. shores, as other comparable bond markets saw their yields fall and offer increasingly scarce income to investors.
The 10-year German government bond yield TMBMKDE-10Y, +27.44% jumped 6.3 basis points to negative 0.190%.
China’s central bank also started to replace old benchmark lending rates with the new Loan Prime Rate for loans issued before next year. By doing so, corporate borrowing costs are expected to drop by around 20 basis points, potentially increasing the circulation of credit for the second largest economy.
Read: How China is joining the rush of global central banks aiming to lower borrowing costs
In economic data, the U.S.’s trade deficit numbers for November are due at 8:30 a.m. Eastern. This will be followed by Chicago purchasing managers index in December at 9:45 a.m., and November’s pending home sales reading at 10 a.m.
What did market participants’ say?
“Treasurys are starting out the final week of the year on the back foot, with the 10-year yield breaching 1.90% on the topside overnight. While there is no obvious catalyst for the move, a shift in Chinese interest rate reform over the weekend may be supporting risk appetite generally, considering the move could effectively lock in a 20 bp rate cut for outstanding loans in China over the course of next year,” wrote analysts at NatWest Markets.
