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June 19, 2020

Treasury Yields Rise on Positive US-China Trade News

 

Treasury yields and swap rates rise with risk assets on positive US-China trade news. After muted price action yesterday, rates and US equity futures are both higher to start the day on reports that China will accelerate purchases of American farm goods in order to meet the targets set out in the “Phase One” trade deal. Looking ahead, today’s session could be a volatile one as index options and futures are set to expire and the S&P is set to rebalance its indices for the first time in six months after postponing the last rebalance in March. The once a quarter event drives trade volumes sharply higher and can lead to large price swings. The 10-year Treasury yield is two basis points higher to start the day while S&P 500 futures are higher by 1.15%.

 

 

COVID-19 cases continue to rise globally. Wednesday's global tally was one of the highest since the beginning of the outbreak. According to Johns Hopkins researchers, 77 countries are recently experiencing spikes in infections while a mere 43 are seeing declines. Brazil reported more than 32,000 new cases on Wednesday, closely followed by the US which reported 25,000 new cases. In the US, the story differs dramatically state by state- Arizona, Texas, Florida, and California (all states beginning to reopen) reporting a rise in cases while states like New York continue to see declines in infection. Worldwide, there are now over 8.5 million COVID-19 cases with almost 500,000 fatalities.

 

 

Dollar continues to strengthen. Global uncertainty has renewed the dollar's strength, with the US Dollar Index bouncing back from a 3-month low of 95.96 last week, which was its lowest level since the Covid-19 shutdowns began in the US. Across the pond, Brexit negotiations and pandemic shutdown measures have put pressure on the Bank of England to ease monetary policy further. BOE engaged in bond-buying to the tune of 100mm pounds on Thursday. In Europe, EU leaders could not come to agreement on economic stimulus measures to support the Eurozone's recovery from shutdown. On the other side of the globe, Japan saw some good news as officials declared that the economy has stopped worsening from the shutdown measures.

 

 

 

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