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Bond Traders Left Feeling Flat After Wednesday’s Triple Whammy

Vivien Lou Chen and Alyce Andres

(Bloomberg) -- After a trio of widely anticipated events on Wednesday, it turned out it was yet another flareup of concern about trade talks that drove the bond market’s direction.

Concerns about tensions between China and the U.S. continued to dominate market sentiment. A report of a hiccup in the negotiations outweighed much-anticipated public impeachment hearings and Federal Reserve Chairman Jerome Powell’s appearance before Congress’s Joint Economic Committee. Key inflation data this morning also did little to sway the market.

“Neither the inflation data nor Powell’s testimony gave us anything new to chew on,” said John Velis, a strategist at Bank of New York Mellon. “So it doesn’t surprise me that what drives the curve is not those two things, but a general risk-off tone since the beginning of the week. There was nothing from CPI or Powell to break that narrative.”

Concerns about the trade deal between the U.S. and China resurfaced after a report said farm purchases have become another of several issues in negotiations. The prospect of a deal between the world’s two biggest economies had pushed yields higher this month.

Treasuries advanced on the day, with gains led by the belly and longer maturities. The gap between 2- and 10-year yields narrowed by about 2 basis points to 25 basis points.

Meanwhile, demand for long-maturity futures from hedge funds and real-money investors helped spur the curve flattening, according to a Chicago-based futures salesman.

Velis says he sees the risk-off trend continuing in the days ahead with a lack of data that would change the market’s momentum. Even so, he says, that can change quickly given the “headline-driven” dynamic of the market.

To contact the reporters on this story: Vivien Lou Chen in San Francisco at vchen1@bloomberg.net;Alyce Andres in Chicago at aandres17@bloomberg.net

To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Debarati Roy, Mark Tannenbaum

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