Bond Report: Treasury yields retreat as U.S.-China tensions threaten renewed geopolitical concerns

Bond Report

U.S. Treasury yields fell Friday as investors contended with escalating tensions between Washington and Beijing amid the COVID-19 pandemic, drawing appetite for haven assets.

The U.S. bond-market will be closed next Monday in observance of the Memorial Day holiday.

See: Is the stock market closed today? Here’s everything investors need to know about Memorial Day trading hours and closures

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
0.660%

fell 1.8 basis points to 0.659%, trimming its weekly drop to 1.9 basis points, while the 2-year note rate
TMUBMUSD02Y,
0.173%

was virtually unchanged at 0.168%, leaving it up 1.9 basis points for the week.

The 30-year bond yield
TMUBMUSD30Y,
1.374%

slipped 2.6 basis points to 1.373%, paring back its weekly increase to 5.3 basis points. Bond prices move inversely to yields.

What’s driving Treasurys?

Bonds rallied and global stock markets were under pressure as geopolitical risks came to the fore.

Given the uncertainty created by the coronavirus pandemic, China dropped its GDP target for the first time since adopting the practice in 1994, but of more concern officials suggested the government is preparing to impose a national-security law on Hong Kong in response to last year’s pro-democracy protests.

See: ‘The worst nightmare is happening before our eyes,’ says democratic legislator after Beijing moves to impose security laws on Hong Kong

Hong Kong’s Hang Seng index
HSI,
-5.56%

tumbled 5.6% in response, marking its biggest loss in around five years. The S&P 500
SPX,
+0.23%

and Dow
DJIA,
-0.03%

were range-bound ahead of the holiday weekend.

The U.S. Congress was moving forward with a bill that could prevent Chinese companies from listing on U.S. exchanges. The bill would require Chinese companies to establish they are not owned or controlled by a foreign government.

Read: U.S. and China need to figure out way to work together even as tensions heat up, says former Treasury trade expert

What did market participants’ say?

“We think quiet markets are bullish markets (ie lower rates). We also count simmering geopolitical risks as an argument skewing rates risks to the downside. Tensions between the U.S. and China over Hong Kong are the latest source of worries,” said rates strategists at ING, in a note.

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