U.S. Treasuries and related ETFs continued to rally Monday, with yields on benchmark 10-year Treasury notes breaking below the key 3% mark, as the safe-haven assets rebounded on lingering fears on tensions between Washington D.C. and Beijing.
The iShares 7-10 Year Treasury Bond ETF (NASDAQ: IEF) was up 0.2% as yields on 10-year Treasuries slipped to 2.99% in late day trading Monday. IEF gained 1.3% over the past month.
The yield flattened and the yield curve between the three-year and five-year notes inverted for the first time since 2007 after yields rose earlier in the session in response to the deal between the U.S. and China to hold off on new tariffs, which bolstered demand for riskier assets, Reuters reports.
However, the knee-jerk sell-off in Treasuries faded as investors refocused on the ongoing trade tensions between the two countries.
”Some of the exuberance is fading off a little bit as people digest the news and understand that we’re still a ways away from having any real deal in place,” Zach Griffiths, an interest rate strategist at Wells Fargo, told Reuters.
Related: Investors Continue Flocking to Short-Term Bond ETFs
The yield curve has been flattening on continued interest rate hikes, which pushed up short-term yields, while long-term Treasuries have been supported by tepid inflation and slowing global growth.
The Federal Reserve is widely expected to hike its benchmark rates at the upcoming December 18 to 19 meeting, but market watchers are now anticipating only one more rate hike during 2019, compared to the Fed’s earlier expectations of three hikes.
Yields on later-dated debt have been slowly pulling back over the past couple of weeks after comments out of the Fed suggested the central bank could be slowing down its rate hike schedule next year as it moves closer to the end of its tighter monetary policy. Speculators were given further ammunition after Federal Reserve Chairman Jerome Powell said the Fed’s key policy rate was “just below” a neutral level that would neither speed nor slow down the economy, compared to early October comments that of rates being “a long way” from that threshold, the Wall Street Journal reports.
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