30-year Treasury yield stages biggest daily rise since last October

Treasury prices fell Monday, pushing yields higher, after reports that Germany was entertaining the use of fiscal stimulus and signs that U.S.-China trade talks may be restarted.

What are Treasurys doing?

The 30-year Treasury yield surged 8.9 basis points to 2.090%, marking its biggest daily rise since October 2018. The two-year note rate rose 6.2 basis points to 1.541%, while the 10-year note yield climbed 6.3 basis points to 1.603%, marking its biggest daily increase since July 5. Debt prices move in the opposite direction of yields.

See: Stock-market investors rattled by bond market's 'warning shot' -- here's what's next (http://www.marketwatch.com/ story/stock-market-investors-rattled-by-bond-markets-recession-warning-heres-whats-next-2019-08-17)

What's driving Treasurys?

German Finance Minister Olaf Scholz said (http://www.marketwatch.com/story/germany-could-spend-55-billion-on-stimulus- should-economy-slow-report-2019-08-19) that Germany was open to the use of fiscal stimulus if its economy slowed, and suggested it could deploy around 50 billion euros ($55 billion) of additional spending, according to Bloomberg News. Its gross domestic product fell by 0.1% in the second quarter of 2019. A second consecutive quarter of shrinking GDP would meet a widely used definition of recession.

The talk of fiscal stimulus helped to weigh on demand for government paper in Europe as investors have attributed the lack of issuance from Germany for depressing sovereign debt rates in the eurozone's largest economy.

The German 10-year government bond yield rose 2.6 basis points, to negative-0.648%.

Prices for long-term Treasurys also took a hit after the U.S. Treasury Department on Friday said (https:// www.treasury.gov/resource-center/data-chart-center/quarterly-refunding/Pages/Latest.aspx)it would conduct market outreach on the possibility of issuing ultra-long maturities. This could weigh on demand for current long-term notes such as the 30-year bond.

President Donald Trump said (https://www.reuters.com/article/us-usa-economy/trump-not-ready-for-china-trade-deal- dismisses-recession-fears-idUSKCN1V80HS)he was talking with China, but cast doubt on the U.S. striking a trade deal soon. White House economic adviser Larry Kudlow said trade representatives from the two countries would meet within the next 10 days. If those negotiations "pan out," he said the White House would plan to have Chinese officials come to the U.S. to advance talks.

Looking ahead, investors will gear up for the Jackson Hole, Wyoming, symposium later this week, where investors are hoping that Fed Chairman Jerome Powell will open the door to further rate cuts.

What did market participants say?

"Whether we are now in the throes of a more significant corrective rise [in bond yields] in the next two weeks, of course, remains to be seen. The idea that political green shoots in Germany are blossoming for more issuance and fiscal stimulus is offering a timely counter weight," wrote Kenneth Broux, strategist for Société Générale.

"Aside from any talk of fiscal stimulus and long-end issuance, this week will be all about Jackson Hole and whether Powell will continue his stance on his 'mid-cycle adjustment,'" said David Shiau, senior U.S. rates trader for Jefferies.

-Sunny Oh; 415-439-6400; AskNewswires@dowjones.com


  (END) Dow Jones Newswires
  08-19-19 1620ET
  Copyright (c) 2019 Dow Jones & Company, Inc.

News, commentary and research reports are from third-party sources unaffiliated with Fidelity. Fidelity does not endorse or adopt their content. Fidelity makes no guarantees that information supplied is accurate, complete, or timely, and does not provide any warranties regarding results obtained from their use.