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BOND REPORT: Treasury Yields Come Off Highs As Investors Raise Questions Over Tentative Brexit Deal

By Sunny Oh

Doubts linger around likelihood of Brexit deal ratification

U.S. Treasury yields came off their intraday highs Thursday after optimism waned around the U.K.'s tentative agreement to leave the European Union, amid questions of how it will get approved in a divided British Parliament on Saturday.

What are Treasurys doing?

The 10-year Treasury note yield was up 0.7 basis points to 1.757%, after trading as high as 1.797%, while the 2-year note rate was up 1.4 basis points to 1.604%. The 30-year bond yield edged up 0.6 basis point to 2.243%.

What's driving Treasurys?

The earlier selloff in bond markets faded after stocks lost their momentum after analysts said there remained substantial obstacles before the Brexit agreement is ratified. It is unclear if U.K. Prime Minister Boris Johnson's proposal will be approved by Parliament under the opposition from Northern Ireland's Democratic Unionist Party.

See: What a Brexit deal would mean for U.S. stocks and global investors (link)

Johnson had announced the U.K. and European negotiators had managed to strike a tentative Brexit deal, with European Commission President Jean-Claude Juncker saying it was a "fair and balanced agreement." Investors said the breakthrough lowered the chance of the U.K. leaving the EU without a trade deal in hand.

The U.K. 10-year government bond yield was down 0.9 basis point to 0.684%, based on Tradeweb data.

The Dow Jones Industrial Average and the S&P 500 index were slightly higher on Thursday.

Investors handled a raft of U.S. economic data in the morning. The Philadelphia Fed manufacturing index (link) fell to 5.6 in October, after hitting 12 in September. Housing starts slumped 9.4% in September (link) to an annual pace of 1.26 million, while home-builder permits dropped 2.7% last month to a pace of 1.38 million.

Industrial production fell 0.4% in September (link), the largest one-month drop since April, and below the 0.2% expected by economists, according to a MarketWatch survey.

See: Here's what has been agreed between the EU and the U.K. on Brexit (link)

Federal Reserve officials could also give clues to the outlook for another rate cut before the end of the year. New York Fed President John Williams is due to speak at 4:20 p.m.

What did market participants' say?

"Buying has grudgingly returned to [Treasurys] as the Brexit risk breakout faded on the realities of getting the deal passed through Parliament," wrote Jim Vogel, an interest-rate strategist at FTN Financial.

 

(END) Dow Jones Newswires

October 17, 2019 15:39 ET (19:39 GMT)

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