U.S. Treasuries gain after U.S.-China trade talk effect fades; 3y/5y yield spread inverts first time in 10 years

The U.S. Treasuries gained during late afternoon session Tuesday as investors shifted away from safe-haven assets after enjoying a solid rally yesterday, owing to the Saudi-Russia deal to work together this week to manage supply – and supported by the weekend’s de-escalation of trade tensions between the US and China at the G20 Summit.

However, the excitement surrounding U.S.-China talks faded, thus weighing on the bond yields.

Also, the yield spread between the 3-year and 5-year bond yield has inverted for the first time in over a decade, with the difference dropping below zero, thus marking the first portion of the curve to invert in this cycle, Bloomberg reported.

The yield on the benchmark 10-year Treasuries slumped 3-1/2 basis points to 2.957 percent, the super-long 30-year bond yields plunged 5-1/2 basis points to 3.224 percent and the yield on the short-term 2-year traded nearly 1-1/2 basis points lower at 2.821 percent by 11:30GMT.

Wall Street enjoyed a solid rally yesterday with the S&P500 eventually closing up 1.1 percent, paced by a strong rise in energy stocks – a consequence of the Saudi-Russia deal to work together this week to manage supply – and supported by the weekend’s de-escalation of trade tensions between the US and China.

However, an initial bounce in US Treasury yields failed to stick, with the 10-year yield eventually falling to a new 3-month low of 2.97 percent. Amongst the Fedspeak, Vice Chair Richard Clarida added to last week’s more dovish tone, telling Bloomberg Television that "…we are in a world where central banks, including the Fed, are focused on keeping inflation away from disinflation", Daiwa Capital Markets reported.

The rally on Wall Street was, however, a little less enthusiastic than had been indicated by futures markets early in the day. And so with the focus turning to the opaque nature of China’s weekend commitments, many Asian equity markets have walked back some of yesterday’s gains, with worse in Japan, the report added.

Meanwhile, the S&P 500 Futures remained tad 0.37 percent higher at 2,780.75 by 11:40GMT, while at 11:00GMT, the FxWirePro's Hourly Dollar Strength Index remained slightly bearish at -77.18 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex