Better-than-feared trade prospects weigh on bond demand
Jobs data, business survey point to resilient economy
Trump to visit Fed later on Thursday amid ongoing tensions
10-year TIPS auction meets good demand
(Adds graphic, analyst comments, context, auction results; updates yields)
NEW YORK, July 24 (Reuters) – U.S. Treasury prices declined on Thursday as a trade deal with Japan and expectations of a similar agreement with Europe could soften the economic blow of steep import duties that President Donald Trump planned to impose on large U.S. trade partners.
Better-than-feared prospects for trade negotiations ahead of an August 1 tariff deadline reduced investor demand for Treasuries, typically a safe-haven asset at times of economic turbulence. U.S. economic data on Thursday also pointed to a resilient labor market, further lifting Treasury yields, which move inversely to prices.
“Some of the bigger fears around tariffs pushing inflation higher, or the U.S. economy crumbling … I think for each week that goes by there’s increasing comfort that perhaps those tail risk scenarios are less likely to play out,” said Anders Persson, chief investment officer and head of global fixed income at Nuveen.
Trump announced a trade deal with Japan this week that lowers tariffs on auto imports to 15% and spares Tokyo from punishing new levies on other goods. Meanwhile, the European Commission said on Thursday a negotiated trade solution with the United States was within reach.
Progress on trade agreements has also raised market hopes on trade talks with China. Treasury Secretary Scott Bessent said this week U.S. and Chinese officials would meet in Stockholm next week to discuss an extension to the deadline for negotiating a trade deal.
On the economic front, the number of Americans filing new applications for jobless benefits fell to a three-month low last week, the Labor Department said on Thursday, pointing to stable labor market conditions, and U.S. business activity picked up in July, according to a survey from S&P Global on Thursday.
Treasury yields inched higher after the data releases.
“There’s some recognition or acknowledgment that the global economies are holding up reasonably well, that there is perhaps less urgency for the Federal Reserve to be cutting rates,” said Persson at Nuveen.
The U.S. housing picture is less rosy, however, with sales of new U.S. single-family homes increasing less than expected in June amid higher mortgage rates, the Commerce Department’s Census Bureau said on Thursday.
That contributed to slowing the selling momentum in the Treasury market later on Thursday, as investors continued to bet on nearly two 25-basis point interest rate cuts by the Federal Reserve by the end of this year to support the economy.
“Housing remains stuck in a poor place,” said Stan Shipley, fixed income strategist at Evercore ISI. “People are talking down the (job) claims number because they still believe the Fed is going to cut in September,” he said.
Fed policymakers will meet next week but the market is not expecting changes to interest rates at that meeting.
Trump, who has repeatedly blasted Fed Chair Jerome Powell for keeping interest rates high, will visit the central bank later on Thursday. Investors are still alert to potential headlines on Powell’s future after a news report last week, denied by Trump, that he was planning to oust Powell before his term ends in May next year.
Bond price action on Thursday, however, suggested the market was not anticipating that scenario. A removal of Powell would likely push short-term yields lower on expectations of a more dovish Fed Chair, but two-year yields on Thursday rose along with other maturities.
Benchmark 10-year yields were last at 4.408%, about two basis points higher on the day. Two-year yields were last up by four basis points to 3.925%.
On the supply front, the Treasury Department sold 10-year Treasury Inflation-Protected Securities worth $21 billion in an auction that was lapped up by investors.
The securities were sold with a high-yield of 1.985%, below their market at the time of bidding, in a sign investors were willing to accept a lower yield to secure the notes.
(Reporting by Davide Barbuscia; Editing by Alison Williams and Diane Craft)
