Bond Report: Treasury yields tick higher after Trump calls off Iran military strike

U.S. Treasury yields rose early Friday after news reports said President Donald Trump declined to launch military strikes against Iran in retaliation for shooting down a U.S. drone.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -0.22%   rose 2.4 basis points to 2.025%, a day after falling below the 2% level to a two and half year low. The 2-year note yield TMUBMUSD02Y, -1.46%   climbed 4 basis points to 1.768%, while the 30-year bond yield TMUBMUSD30Y, -0.21%   was mostly unchanged at 2.534%. .

What’s driving Treasurys?

After initially approving a military attack against Iran late Thursday, Trump later made an about-turn and called off the strikes last minute, according to the New York Times. Easing geopolitical uncertainty Friday morning helped soothe investor jitters and dampen demand for haven assets like government paper.

Later Friday, investors will digest speeches from members of the Federal Open Market Committee, after the central bank signaled possible interest rate cuts later this year on Wednesday. Fed Gov. Lael Brainard and Cleveland Fed President Loretta Mester will both speak at 12 p.m. Eastern, followed by San Francisco Fed President Mary Daly at 12:30 p.m.

What did market participants’ say?

“The big news out overnight is apparently that Trump pulled back on air strikes in Iran. Ten year yields traded at 1.99% during the Tokyo session and then quickly sold off,” wrote Tom di Galoma, managing director at Seaport Global Securities.

“Most likely, Trump will respond to Iran’s aggression so buying dips makes the most sense,” he said.

What else is on investors’ radar?

In economic data, IHS Markit’s manufacturing and service sector purchasing managers’ indexes are due at 9.45 am Eastern.

NAR existing home sales data is due at 10.00 am Eastern. MarketWatch forecast home sales to run at an annual rate of 5.28 million in May, from 5.19 million in April.

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