10-Year T-Note Futures Market News and Commentary
Dec 10-year T-notes (ZNZ19) this morning are down -2 ticks and the 10-year T-note yield is down by -1.6 bp to 1.768%. Dec T-notes are slightly weaker this morning on reduced U.S./China trade tensions that have fueled gains in stocks and undercut safe-haven demand for T-notes. U.S./China trade tensions eased today as trade negotiators from the U.S. and China resume meetings in Washington D.C. for a second day today. The negotiations are expected to lay the groundwork for top-level negotiations between Treasury Secretary Mnuchin, U.S. Trade Representative Lighthizer, and Chinese Vice Premier Liu He in early October. The markets are hoping for at least an "interim" agreement whereby President Trump agrees to hold off on new tariffs planned for Oct 15 and Dec 15, and a possible roll-back of the Sep 1 tariffs, in return for Chinese ag purchases and commitments on IP protection. Slack producer price pressures in Germany boosted 10-year German bunds today, which is supportive for T-notes, after today's data showed German Aug PPI rose by only +0.3% y/y, weaker than expectations of +0.6% y/y and the smallest pace of increase in 2-3/4 years. The 10-year German bund yield dropped to a 1-week low of -0.522% today on the weaker than expected producer prices. Strength in 10-year UK gilts is another supportive factor today for T-note prices. The 10-year gilt yield fell to a 1-week low of 0.614% today on no-deal Brexit concerns after Irish Foreign Minister Coveney dampened speculation of a Brexit deal when he said there is still "quite a wide gap" between the U.K. and European Union. Ongoing Middle East tensions remain a supportive factor for safe-haven demand of T-notes after Iran's foreign minister on Thursday warned that any U.S. or Saudi strike on his country in response to Saturday's attack on Saudi oil installations would lead to "all-out war." U.S. inflation expectations are lower today as the 10-year T-note breakeven inflation rate is down by -0.3 bp to 1.616%. The 10-year T-note breakeven inflation rate fell to a 1-week low of 1.592% on Thursday but is still up sharply from last Tuesday's 2-3/4 year low of 1.494%.