Treasury yields bounce off session lows as stock-market rally offsets Brexit jitters

Treasury yields came off intraday lows on Tuesday after a rally in equities drew investors away from the perceived safety of U.S. government paper, offsetting geopolitical concerns around the overwhelming parliamentary defeat of U.K. Prime Minister Theresa May’s Brexit plan.

The 10-year Treasury note yieldTMUBMUSD10Y, +0.43% was little changed at 2.71%, after hitting an intraday low of 2.681%. The 2-year note yieldTMUBMUSD02Y, -0.81% fell 0.6 basis point to 2.531%. The 30-year bond yieldTMUBMUSD30Y, +0.68% rose 0.8 basis point to 3.070%, its highest since Dec. 18. Bond prices move in the opposite direction of yields.

The 10-year yield for the British government bondTMBMKGB-10Y, -3.23% or gilt, was down 3.4 basis points to 1.255%, while the 10-year German bond yieldTMBMKDE-10Y, -9.07% fell 1.9 basis points to 0.153%, according to Tradeweb data.

Equities rose after Beijing announced tax cuts for small firms and the manufacturing sector. The introduction of fresh stimulus measures comes in the wake of a sharp slide in Chinese exports in December, which drew attention to the weakening global economy and the impact of U.S.-China tariffs. Tech stocks led the advance as the Nasdaq CompositeCOMP, +1.71% was on track to close above 7,000 for the first time since Dec. 2013.

Still, investors had Brexit developments and a record-setting government shutdown to contend against. U.K. lawmakers roundly rejected British Prime Minister Theresa May’s plan to withdraw from the European Union on Tuesday, injecting further uncertainty into the process. And jitters around a government shutdown are growing after the White House doubled their estimate of the hit on the U.S.’s annual economic output from the partial government closure.

“The longer both matters remain unresolved the more they will become a drag on sentiment and eventually on economic activity,” said George Goncalves, head of U.S. fixed-income strategy, in a note.

See: Brexit Brief: U.K. Prime Minister faces historic defeat in landmark vote

On the data front, producer prices for December fell 0.2%, below the 0.1% decrease expected from economists polled by MarketWatch. January’s Empire State index, a regional survey of manufacturing health, fell to a reading of 3.9 from 11.5 in December.

Market participants saw more dovish speeches from senior Federal Reserve officials. Minneapolis Fed President Neel Kashkari said the U.S. central bank shouldn’t “snuff out” growth with future rate increases. Kansas City Fed President Esther George said she saw merits of pausing the path to normalizing rates.

As one of the most notable hawks on the Federal Open Market Committee, George’s remarks were seen as indicative of a broader shift among the rate-setting group toward a more cautious stance.

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