US Treasury yields rose on Thursday after reports of new trade talks between the United States and China boosted risk appetite and reduced demand for safe-haven bonds. The talks offered a glimmer of hope for progress in resolving a conflict that has set world financial markets on edge. "That is certainly helping equities and contributing to the 'risk off' trade," said Mary Ann Hurley, vice president in fixed income trading at D.A. Davidson in Seattle.
Benchmark 10-year notes fell 7/32 in price to yield 2.877 percent, up from 2.851 percent on Wednesday. The yield curve between 2-year and 10-year notes steepened to 25 basis points, from 23 basis points on Wednesday, the flattest level since 2007. Bonds pared price losses after US Treasury Secretary Steven Mnuchin said that the United States was ready to put further sanctions on Turkey if detained American pastor Andrew Brunson was not released.
Benchmark yields had fallen to their lowest levels in almost four weeks on Wednesday on concerns about the Turkish crisis hitting other emerging markets. With no major economic releases this week investors are focused on trade tensions and emerging market weakness. "The trade talks and the back and forth on Turkey is really going to be the stuff everybody's watching," said Blake Gwynn, an interest rate strategist at NatWest Markets in Stamford, Connecticut.
An upcoming focus for investors will likely also be an August goal for Mexico and the US to renegotiate the North American Free Trade Agreement (NAFTA), which has been beset by disagreements over automobile trade rules and other issues.
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