US Treasury yields eased on Wednesday and hit a second day of decline. Investors doubted that the recently signed US-China trade pact would spur the American economy significantly this year.
Yields fell on Tuesday after subdued US consumer inflation and small business sentiment followed by mixed economic data on Wednesday.
How did the main indices develop?
The return on the 10-year US Treasury note
TMUBMUSD10Y, + 0.54%
declined 2.9 basis points to 1.788% while the 2-year Treasury yield
TMUBMUSD02Y, + 1.05%
lost 1.8 basis points to 1.560%.
The 30-year government bond yield
TMUBMUSD30Y, + 0.33%.
Also known as the long bond, gave up 3.2 basis points at 2.243%.
What drove the market?
China-USA. Trading relationships were the focus of investors on Wednesday. The signing of a preliminary agreement between the two superpowers is a relaxation in a trade war that has shaken global markets and businesses for almost two years. However, questions remain about details, including how Beijing and Washington will tackle issues that include Chinese subsidies to domestic businesses and intellectual property theft through companies like Huawei Technologies.
While the agreement will cut some tariffs on Chinese goods, an estimated $ 360 billion in tariffs on Chinese imports will continue to be levied, and some economists have described high tariffs between Washington and Beijing as "new normal".
check-Out: Here is the full text of the US-China trade agreement
Inflation in producer prices remained subdued in the US economic data. Wholesale prices rose 0.1% last month, the government said on Wednesday. Economists surveyed by MarketWatch had forecast an increase of 0.2%. Wholesale control rose only 1.3% last year, half as much as in 2018. Inflation has declined since the summer and shows little sign of acceleration.
The PPI report follows the cautious reading of US consumer price inflation on Tuesday, with price increases only 0.2% in December. As core prices were exempt from volatile food and energy prices, it rose slightly by 0.1%, below the expected 0.2%.
"The disappointing PPI data, along with the weak CPI report released earlier this week, underlines that price pressures remain extremely low," wrote a team of economists at Oxford Economics led by Lydia Boussour on Wednesday.
"Looking to the future, we see a continued under-inflation as soon as GDP growth falls below potential, causing the Fed to cut rates again in June."
Federal Reserve chairman Jerome Powell announced in December that the central bank would keep interest rates within a target range of 1.5% to 1.75% in 2020 unless the economy worsens noticeably.
Regardless, the New York Federal Reserve's Empire State Business Condition Index rose Wednesday's modest 1.5 points to 4.8 in January, the regional Fed said on Wednesday. According to a survey by Econoday, economists had expected a value of 3.6. A value above zero indicates that conditions are improving.
A report on business conditions in the Fed's regional districts, the so-called Beige Book, showed that the U.S. economy expanded slightly in the last six weeks of 2019, largely due to consumer spending.
Otherwise, economic growth in Germany fell to a six-year low in 2019 and underlined the vulnerability of the European export engine to tensions in the global economy. Germany's 10-year government debt was minus 0.200%,
compared to negative 0.167% a day ago.
Italy joined a rush of eurozone governments on Wednesday to issue bonds. According to Reuters, more than 44 billion euros have been ordered for the 30-year offer of Italian bonds. 30 year Italian debt
fell 2.438%, compared to 2.458% on Tuesday.
What did the market participants say?
"In fact, the signing was deeply integrated into the ratings, so we're sitting where we are today," Penn Mutual Asset Management's chief investment officer Mark Heppenstall told MarketWatch.
"It does not appear that economic growth is strong enough to see a significant rise in inflation," he said, adding that interest rates are likely to follow the Fed's lead and "are more likely to be tied to the range than two so far Years earlier. "