Friday, 20 July 2018 17:00

30-year government bond rate hits highest in July as Trump questions Fed policy

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Treasury yields rose Friday as investors grappled with President Donald Trump’s comments criticizing the domestic monetary policy and that of allies in China and Europe.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +1.91%[1]  rose 3.9 basis points to 2.886%. The benchmark maturity has been trading in a tight range, drawing concerns the quiet in the bond market may result in a surge in a selloff and a surge in rates.

See: The bond market is ‘coiling’ for a violent yield surge, says BMO strategist[2]

The 2-year note yield TMUBMUSD02Y, +0.65%[3]  was down 0.4 basis point to 2.591%, the 30-year bond yield TMUBMUSD30Y, +2.22%[4]  climbed 5.6 basis points to 3.023%, marking its highest level this month.

Bond prices move in the opposite direction of yields.

What’s driving the market?

Investors have keyed into President Donald Trump’s tweets that monetary tightening were making it difficult for the U.S. economy to “recapture” the losses from unfair trade deals and currency manipulation by China and the European Union.

....The United States should not be penalized because we are doing so well. Tightening now hurts all that we have done. The U.S. should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals. Debt coming due & we are raising rates - Really?

— Donald J. Trump (@realDonaldTrump)

This comes after Trump’s comments saying he was unhappy the central bank‘s rates hike were frustrating his efforts to boost the economy, in a Thursday interview with CNBC. Investors said though his remarks might hint at his willingness to breach the veil of the Fed’s independence, it was unlikely Trump would influence the central bank to slow the current pace of monetary tightening.

St. Louis Fed President James Bullard said the central bank should suspend its rate hikes try to avoid an outright inversion of the yield curve[6], the gap between short-dated rates and long-dated rates. He also said senior Fed officials wouldn’t pay heed to Trump’s criticism. Investors have seen a flattening curve as a sure bet with a central bank unwilling to hold back its gradual rate hikes, which have pushed up short-dated yields.

Read: Pimco says Fed would signal pause to rate hikes to avoid ‘lasting’ yield curve inversion[7]


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