Treasuries Rise as Trump Comments Spark Losses in Dollar, Stocks

  • Yields fall to lowest levels in a week, lead global move
  • Curve steepens as AT&T follows Microsoft selling 40-year debt

Treasuries rose Tuesday, pushing yields to a one-week low, as President Trump’s allegation that other countries engage in currency devaluation drove down the dollar and weighed on stocks.

The 10-year yield was lower by almost 5 basis points at 2.44 percent at 3:21 p.m. in New York, reaching its lowest since Jan. 24. The rally began to accelerate at about 9:45 a.m., as Trump’s comments coincided with an unexpected drop in the January Chicago PMI; earlier, Treasuries faced pressure led by the 30-year after AT&T slated a $10 billion debt offering including 30-year and 40-year maturities.

  • The 10-year yield declined as much as 5.7 basis points, aided by month-end index duration extensions; UST futures volumes were heaviest of the session into 3 p.m., when bond indexes are rebalanced
    • Estimated extension for Bloomberg Barclays Treasury Index is +0.07yrs
    • Most euro-zone 10-year yields closed lower by 2-5 basis point, also aided by month-end
  • Prospect that escalating tension with Senate Democrats over cabinet nominees may delay action on tax cuts is among other factors curbing risk appetite
  • The 5s30s yield curve retreated from session highs in the rally, remaining steeper by about 2bp; it traded above 115bp for the first time since Dec. 14 after the AT&T deal announcement, aided by large sellers of Ultra Bond futures and a 10s30s futures block steepener 
  • $6b of AT&T’s 6-part debt offering was in tranches maturing in 20Y-40Y; on Monday, Microsoft issued $17b, of which $7.5b was in those maturities
  • UST yields ended January within 2bp of where they ended 2016 as upward pressure from stocks reaching record highs, wage growth and hawkish Fed were offset by dollar weakness and controversy over Trump immigration restrictions
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