Treasurys follow European bonds higher amid geopolitical jitters and slowing China activity
Treasury prices rose on Wednesday, pushing yields lower, after signs of softness in the Chinese economy and geopolitical concerns around Italy’s fiscal deficits spurred inflows into haven assets like U.S. government paper.
The 10-year Treasury note yieldTMUBMUSD10Y, -2.01% fell 3.5 basis points to 2.384%, its lowest in six weeks. The 2-year note yieldTMUBMUSD02Y, -2.24% was down 3.1 basis points to 2.172%, while the 30-year bond yieldTMUBMUSD30Y, -1.25% slipped 2.8 basis points to 2.825%. Debt prices move in the opposite direction of yields.
The German 10-year government bond yieldTMBMKDE-10Y, -90.90% fell 4.1 basis points to negative 0.115%, while the Italian 10-year yieldTMBMKIT-10Y, +1.81% climbed 4.1 basis points to 2.772%.
Italy’s deputy prime minister Matteo Salvini said Italy could break the European Union’s fiscal rules to increase employment in the sluggish economy. Investors are entertaining the possibility of a renewed clash between Rome and Brussels after the European Commission forecast Italy’s deficit to GDP level would hit 2.5% in 2019 and 3.5% in 2020, which would eventually put it in breach of the EU’s 3% fiscal ceiling.
Germany’s economic minister Peter Altmaier underlined the gloomy economic backdrop even after the eurozone’s largest economy grew 0.4% in the first-quarter, staving off fears of a recession.
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China’s retail sales rose 7.2% in April from a year earlier, but represented the slowest pace of growth since 2003. Economists said slowing consumer activity underlined the need for additional fiscal stimulus beyond what Beijing had injected into the Chinese economy earlier this year.
“Higher [bond] prices took place as Italian Deputy Premier indicated he’s prepared to break EU fiscal limits and German Economy Minister says economy is still in a weak phase,” said Tom di Galoma, managing director of Seaport Global Securities, who said investors should anticipate lower yields in the face of increased geopolitical concerns.
U.S. retail sales is set for release at 8:30 a.m. Eastern time, along with the Empire State manufacturing survey. Industrial production data will later come out at 9:15 a.m.
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