NEW YORK- Longer-dated US Treasury yields reversed earlier declines on Tuesday, as political parties in Germany reached a deal to overhaul borrowing rules and create a new infrastructure fund.
The parties hoping to form Germany’s next government agreed to create a 500 billion euro infrastructure fund and overhaul borrowing rules in a massive spending shift to revamp the military and stimulate Europe’s largest economy.
“The fresh spending by Germany would lead to issuance and is somewhat stimulative. So that was definitely one of the factors among a few different things at the same time,” said Dan Mulholland, head of rates – trading & sales, Crews & Associates, New York.
Yields were initially lower and shorted-dated yields remained lower on the day as tariffs by US President Donald Trump on Canada, Mexico and China went into effect, exacerbating concerns about economic growth and boosting expectations for Federal Reserve rate cuts.
“With the tariff conversation, since we’ve had more of a slowing economic growth story, that picture, combined with the tariffs just now emphasize that more in that direction so now you’re getting more rate cuts being priced in,” said Jim Barnes, director of fixed income at Bryn Mawr Trust in Berwyn, Pennsylvania.
