US bond prices ease as markets steady

The 10-year Treasury yield rose two basis points to 2.17% at 17:42 BST.

The People’s Bank of China set the daily reference rate at 6.3306 yuan per dollar, down 1.6 percent from the rate set on Tuesday.

Two-year Treasuries yielded 0.73 percent compared with 2.83 percent for 30-year securities.

China’s pullback from US securities is “far less ominous for the prospects for the Treasury market than some sensationalists might think”, said Ian Lyngen, a government bond strategist at CRT Capital in Stamford, Connecticut. “At the beginning of the week the Fed and rate hike expectations caused yields to rise, now concerns about China are triggering the opposite”.

Demand for $16 billion in 30-year Treasury bonds will be tested at an auction Thursday as yields hover close to three-month lows.

Treasuries briefly trimmed gains when the government reported U.S. non-farm productivity as rebounding in the second quarter, but the data came with a weak underlying trend suggesting inflation could accelerate more than economists have anticipated.

Thursday, anxiety in global financial markets dialed back after Chinese central bank officials ruled out a significant decline in the yuan and said that China has the financial firepower to defend the currency as needed. The new bonds were sold at the lowest yield since April.

Lower Treasury yields are confounding many investors and analysts who had expected the 10-year yield to rise toward 3%. Wall Street stocks, which often move inversely to Treasuries, were mostly higher. “Investors like pension funds or life insurance companies or institutional investors, they want a higher yield with a high rating”. However, how can a 25 bp rate hike, which would hardly be surprising by the time it arrives, derail a $17.84 trillion U.S. economy, especially if it is accompanied by plenty of “gradual path” reassurances? “The Treasury market got overbought this morning”.

Therefore, commenting on the additional costs or saving to the government from issuance of a Treasury bond at a particular auction compared with the yield rate of a Treasury bond issued at another auction or in a particular period is not acceptable and justifiable.

The bank’s strategists slashed 2015 Brent crude oil estimates to $50 per barrel from $67. A stronger dollar hurts the U.S.’s competitiveness in global trade, while reducing the prices of imported goods.

The Central Bank said the current policy initiative for issuance of Treasury bonds only at public auctions should be evaluated with a medium to long-term view to understand the benefits of the market mechanism to all participants.