Treasuries extended gains, tracking a jump in European government bonds, as the looming deadline on US tariffs fanned demand for haven assets.
The rally pushed yields lower across tenors, with the 10-year’s falling six basis points (bps) to 4.35%, below its 200-day average level for the first time since July 11.
With few immediate catalysts in the US, the Treasuries market was largely following the gains in eurozone government bonds, where rates were as much as 10bps lower on Monday, said Tom di Galoma, managing director at Mischler Financial Group. He added that yields on 10-year Treasuries could move closer to 4.25%.
US and European Union officials are continuing trade talks this week, and the lack of a breakthrough so far has raised the risk that 30% tariff might come into effect next month.
“Fears about tariff risks and the Aug 1 deadline are adding to a risk-off tone to markets,” said Kathleen Brooks, research director at XTB Ltd. “This is leading to a small reallocation of money as it moves out of equities and into safer assets like Treasuries.”
Gains were led by longer maturities, with the 30-year yield falling seven basis points to 4.91%.
Some investors are likely taking profits on curve-steepening trades, said Evelyne Gomez-Liechti, a multi-asset strategist at Mizuho International.
The two-year yield slipped 3bps to 3.84%. The short end has been supported by traders reaching for protection from the possibility that Trump might fire Federal Reserve chair Jerome Powell, a strategy recently dubbed the “Powell hedge.”
The view is that Powell’s successor would support Trump’s desire for lower interest rates, pushing down shorter yields.
Powell is scheduled to make opening remarks at a Fed conference on Tuesday. He’s not expected to comment on the outlook for interest rates ahead of next week’s policy decision.
Swaps markets show virtually a zero possibility of a cut to rates next week. For the rest of the year, traders are betting that the Fed will lower by a total of 46bps, a level that’s little changed from Friday.
Investors in Japanese bond markets will be watching the start of trading after the government suffered a historic setback at an Upper House election. Markets were closed for a holiday on Monday.
Source: theedgemalaysia