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10-year Treasury yield slips for third straight session as equity slide bolsters bonds

U.S. Treasury prices rose Tuesday, pushing yields lower as the slide in equities spurred demand for haven investments.

What are Treasurys doing?

The 10-year Treasury note yield
TMUBMUSD10Y,
1.593%

fell 1.5 basis points to 1.591%, after running as high as 1.625%, while the 2-year note rate
TMUBMUSD02Y,
0.164%

was steady at 0.160%. The 30-year bond yield
TMUBMUSD30Y,
2.264%

slid 2.3 basis points to 2.264%.

What’s driving Treasurys?

The weakness in U.S. equities fueled bidding in haven assets such as government bonds. It wasn’t clear what the trigger for the sudden dip in risk sentiment, but investors cited geopolitical tensions between China and its Asian neighbors around the South China Sea for some of the market jitters.

The Stoxx Europe 600
SXXP,
-1.43%

fell 1.5%, while U.S. equities were poised to end with losses on Tuesday.

Investors also cited the bearish sentiment in equities to worries that the Federal Reserve may start removing some policy accommodation sooner than planned.

Treasury Secretary Janet Yellen said interest-rate increases may be warranted if the economy overheated. Dallas Fed President Robert Kaplan repeated the need to discuss tapering the central bank’s asset purchases in an interview with MarketWatch.

In economic data, the U.S. international trade deficit widened by 5.6% to a record $74.4 billion in March, reflecting the impact of stimulus payments. Though, higher trade gaps can weigh on economic growth, they’re also a reflection of a recovering U.S. economy and free-spending consumers.

In other U.S. data, factory orders for March rose 1.1%, from an 0.5% decrease in February.

What did market participants say?

“All said and done, globally this reopening has been extremely uneven. And we continue to see the Fed looking for crutches to stay on the side of dovishness,” said Gregory Faranello, head of U.S. rates at AmeriVet Securities.

“In general, we view this sideways price action since the aggressive repricing in the first quarter of 2021 as a natural consolidation period following the speed and velocity in which we repriced in February,” said Faranello.

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