Bond Report: Treasury yields tick higher as U.S.-China trade developments stay in focus

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Treasury yields edged higher on Monday to kick off the holiday-truncated week, following reports that Beijing was willing to take greater steps to alleviate the U.S.’s concerns around intellectual property violations, a sticking point for the trade talks.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -0.05%   was up 1.4 basis points to 1.788%, while the 2-year note rate TMUBMUSD02Y, -0.75%   rose 1.4 basis points to 1.644%. The 30-year bond yield TMUBMUSD30Y, -0.25%   edged up 1.3 basis points to 2.236%. Bond prices move inversely to yields.

What’s driving Treasurys?

Beijing showed it was willing to make some concessions to secure a phase one trade deal, announcing it would take steps to penalize those who committed intellectual property violations. But Reuters reported that there was a dim chance of a phase two deal before the U.S. elections, citing Chinese officials.

Investors also paid attention to Hong Kong, where the pro-democrat camp won an overwhelming majority of the seats in the district council election. Analysts said the local elections served as a referendum on recent protests.

See: Pro-democracy candidates make huge gains in Hong Kong local elections

Read: Why are markets ignoring escalating conflict in Hong Kong?

The modest pressure on the bond market could reflect how broker-dealers are bidding yields higher to make room for a fresh influx of debt supply. An auction for $40 billion of 2-year notes is due at 1 p.m. ET.

In economic data, the Chicago Fed national activity index will come out at 8:30 a.m.

What did market participants say?

“We’ll find out soon enough what Trump makes of China’s domestic clampdown on [intellectual property] theft and violations and if the measures announced this weekend will be conducive to Washington and Beijing tying up loose ends. The interpretation of markets is that it has lowered the bar for a conclusion of the phase one trade deal and partial elimination of tariffs,” wrote Kenneth Broux, a strategist at Société Générale.

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