NEW YORK – US Treasury yields fell alongside British government debt, while expectations that the Federal Reserve will keep rates on hold kept the yield curve near its flattest level in almost a month.
US bonds and British gilts rallied after British polls showed the ruling Conservatives as runaway favorites to win the Dec. 12 election with a pledge to implement Brexit and halt 3-1/2 years of political uncertainty.
“As we’re getting closer to the (British) election there are concerns about any spillover,” said Justin Lederer, an interest rate strategist at Cantor Fitzgerald in New York.
Short-dated debt, meanwhile, has been supported by expectations that the US Fed will be on hold for the intermediate term, after cutting rates three times this year.
“Front-end rates continue to be parked here, given that expectations are clear that the Fed’s going to be on hold,” Lederer said.
Fed Chairman Jerome Powell on Monday said that Fed officials have a favorable outlook for the US economy founded on strong consumer spending, which is bolstered by a robust job market, increasing incomes and solid consumer confidence.
Data on Tuesday showed US consumer confidence fell for a fourth straight month in November amid worries about current business conditions and employment prospects, but remained at levels sufficient to support a steady pace of consumer spending.
Benchmark 10-year note yields were last 1.741 percent, down from 1.764 percent late Monday. The yield curve between two-year and 10-year notes was 15 basis points, after reaching 13 basis points on Monday, which was the flattest level since Oct. 30.
Month- and year-end portfolio rebalancing was also seen as supporting demand for US bonds.
Treasury yields had risen overnight on fresh optimism that the United States and China will reach a deal to deescalate their trade war.
China’s Vice Premier Liu He, US Trade representative Robert Lighthizer and US Treasury Secretary Steven Mnuchin held a phone call on issues related to a phase one trade agreement on Tuesday, China’s commerce ministry said.
The Treasury Department sold $41 billion in five-year notes to solid demand on Tuesday, the second sale of $113 billion in coupon-bearing supply this week.
A $40-billion sale of two-year notes on Monday was also strong. The government will auction $32 billion in seven-year notes on Wednesday. – Reuters