Treasuries Move Modestly Lower On News Of U.S.-Mexico Trade Deal

After ending the two previous sessions roughly flat, treasuries saw modest weakness during the trading day on Monday.

Bond prices moved to the downside in morning trading and remained in negative territory throughout the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.2 basis points to 2.848 percent.

The weakness among treasuries came after President Donald Trump announced a preliminary trade deal with Mexico.

Trump indicated the deal is intended to replace the North American Free Trade Agreement but suggested Canada could be excluded from the new pact.

During a televised conference call with Mexican President Enrique Peña Nieto, Trump praised the U.S. and Mexican teams that negotiated the agreement, which he argued would be good for both countries.

“It’s a big day for trade, a big day for our country,” Trump said. A lot of people thought we’d never get here because we all negotiate tough. We do, and so does Mexico. And this is a tremendous thing.”

The president said the new deal would be called the United States-Mexico Trade Agreement rather than NAFTA, raising questions about the inclusion of Canada.

“We’ll get rid of the name NAFTA,” Trump said. “It has a bad connotation because the United States was hurt very badly by NAFTA for many years.”

Trump indicated the U.S. would soon begin negotiations with Canada but suggested that any agreement could be a separate deal.

“I think we’ll give them a chance to probably have a separate deal,” Trump said of Canada. “We could have a separate deal, or we could put it into this deal.”

Trump argued Canada must negotiate “fairly” and threatened to raise tariffs on Canadian auto imports if an agreement cannot be reached.

Meanwhile, the Treasury Department announced the results of an auction of $36 billion worth of two-year notes, which attracted average demand.

The two-year note auction drew a high yield of 2.655 percent and a bid-to-cover ratio of 2.89, while the ten previous two-year note auctions had an average bid-to-cover ratio of 2.86.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

Following today’s lack of U.S. economic data, trading on Tuesday may be impact by reaction to reports on home prices and consumer confidence.

Bond traders are also likely to keep an eye on the results of the Treasury Department’s auction of $37 billion worth of five-year notes.

by RTTNews Staff Writer

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