Treasury prices edged higher Wednesday, nudging yields lower, as selling pressure abated alongside rising concerns over the fate of a planned summit between the U.S. and North Korea and jitters over the policy agenda of a putative new government in Italy.
A day earlier, the yield on the 10-year Treasury note hit a nearly seven-year high.
How are Treasurys performing?
The 10-year Treasury note yield TMUBMUSD10Y, +0.33%[1] edged 0.3 basis point lower to 3.073%, a day after registering the largest single-day climb since March 1, according to WSJ Market Data Group. The yield hit an intraday peak above 3.09% Tuesday. Yields and debt prices move in opposite directions.
The 30-year bond yield TMUBMUSD30Y, +0.30%[2] fell 1.4 basis points to 3.193%, after the long bond marked its largest daily yield climb since Feb. 2 in the previous session. The short-dated 2-year note yield TMUBMUSD02Y, -0.47%[3] meanwhile, edged 0.8 basis point lower to 2.577%.
What’s driving the market?
Investors watched events in Asia, with North Korea’s threat to pull out of a summit planned for next month with the U.S. sparking worries that a brief detente between Pyongyang and Washington may be near an end.
Read: North Korea threatens to call off U.S. summit if Washington insists on denuclearization[4]
Italian government bond yields jumped after a report said antiestablishment parties in talks to form a government would ask the European Central Bank to write off 250 billion euros ($296 billion) in debt[5] and seek to renegotiate Rome’s contribution to the European Union budget.
While the Treasury selloff paused, the steady climb in government bond yields has been a focus for fixed-income investors. Concerns about rising inflation, a factor that can erode a bond’s fixed value, fueled by signs that prices are rising and the Fed may feel compelled to increase rates twice more in 2018, if not thrice more, has pressured bond prices lower, and pushed yields up.
Market participants are slowly converging around the idea that rates may hit 3.5% or 4% at some point this year, with that expectation underpinned by indicators that support the thesis of an economy that is on a firm footing.
What are strategists saying?
“The U.S. 10-year yield [temporarily] rose above 3.07% key resistance, but the test is ongoing,” wrote analysts at KBC Bank, in a Wednesday note. “The same goes for the test of 3.22%...