U.S. government debt yields fell on Friday as world leaders convened at a Group of 20 summit in Buenos Aires and investors adjusted portfolios after dovish comments from Federal Reserve officials earlier in the week.
The G-20 meeting in Argentina was in focus on the week’s final day of trading as investors around the globe awaited a dinner between President Donald Trump and China President Xi Jinping. A growing trade dispute between the globe’s two largest economies has been one of many factors roiling fixed-income and equity markets over the past year.
As of the latest reading, the yield on the benchmark 10-year Treasury note dipped to around 3.013 percent, while the yield on the 30-year Treasury bond fell to 3.306 percent. The 2-year Treasury yield, meanwhile, held steady around 2.813 percent. Bond yields move inversely to prices.
While hopes are high that Washington and Beijing can broker a truce, U.S. complaints over intellectual property theft and a yawning trade deficit have not appeared to deter a Chinese government often involved in the country’s largest businesses on a granular level.
Investor angst also rose after CNBC reported that White House trade advisor and China trade hawk Peter Navarro will attend the sit-down between Trump and Xi. Navarro, a proponent of the Trump administration’s use of tariffs said earlier this month that any agreement between the two countries will be on Trump’s terms and not subject to Wall Street influence.
“I have no idea what to expect this weekend, frankly. It’s in both Trump’s and Xi’s interest to come up with a deal, but Trump will want a deal he’ll be happy with,” said Arthur Bass, managing director of fixed income financing, futures, and rates at Wedbush Securities. “If we do get an agreement, you could see a sigh of relief in equities, but it’s uncertain what fixed income does with all the comments from the Fed this week.”
Yields have dipped in recent days amid more dovish commentary from the Fed officials. Chairman Jerome Powell, Vice Chair Richard Clarida and minutes from the Federal Open Market Committee’s most recent meeting all suggested greater uncertainty around maintaining quarterly hikes to the federal funds rate.
Though market participants and Fed leadership are confident the central bank will hike borrowing costs in December, Powell on Wednesday said that rates were “just below” the level that would be neutral for the economy — meaning they would neither speed up nor slow down economic growth. The comment diverged from a previous remark from Powell that rates were a “long way” from the bank’s aimed neutral level.
Minutes from the Fed’s November meeting showed that members are wary of the effect trade tensions and corporate debt could have on economic growth, a sign some took to mean that the FOMC could pause regular rate increase in 2019. Moreover, officials indicated that they could adjust future statements to remove the reference to further rate increases and instead emphasize the Fed’s reliance on data when making monetary policy decisions.
“The most significant thing from the Fed was their questioning the use of ‘gradual increases’ in the statement, which really puts us at ‘data dependent,'” Bass added. “It’s a change that puts everything beyond a December rate hike in question.”
In other Fed-related news, New York Fed President John Williams will speak at a panel on the future of the global economy at around 9 a.m. ET. On the data front, Chicago PMI (purchasing managers’ index) and U.S. PMI manufacturing index figures are set to be published at 9:45 a.m. ET.