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Treasury Yields Post Biggest Rally in Three Years as Red-Hot Dow Blazes New Record

Sam Bourgi
Last Updated September 23, 2020 1:16 PM
  • 10-year Treasury yield approaches 2% for the first time since July.
  •  The entire U.S. yield curve jumps double digits on Thursday.
  • Stocks return to record highs on U.S.-China trade deal optimism.

U.S. government debt yields surged on Thursday, reaching their highest level since the summer after brazen investors pushed up the value of stocks following latest bout of China trade-deal euphoria.

Treasury Yields Surge

Interest rates on government bonds jumped as much as 16 basis points on Thursday, their biggest advance  since the day after Donald Trump was elected president in 2016. Yields rise as bond prices fall.

The yield on the benchmark 10-year U.S. Treasury peaked at 1.97%, according to CNBC data, the highest since July 31. It was last spotted around 1.94%, having gained 13 basis points.

US Treasury bond

The yield on the 2-year Treasury note peaked at 1.71%, gaining 12 basis points in the process.

Treasury yields have witnessed a steep recovery over the past four weeks and have more or less stabilized since the summer, when a dangerous inversion threatened the U.S. economy.

Stocks Rally on U.S.-China Trade Optimism

The Dow and broader U.S. stock market surged to record highs on Thursday amid reports that Washington and Beijing plan to gradually remove tariffs once their phase-one trade deal is signed.

China’s Commerce Ministry, which is usually tight-lipped about trade-deal progress, said tariffs will be rolled back based on the content of the agreement.

Ministry spokesman Gao Feng issued the following statement, according to The Wall Street Journal :

If the phase-one deal is signed, China and the U.S. should remove the same proportion of tariffs simultaneously based on the content of the deal. This is what [the two sides] agreed on following careful and constructive negotiations over the past two weeks.

The Dow Jones Industrial Average (DJIA) rallied as much as 287 points on the news.

Rolling back tariffs without a comprehensive trade deal in place is a major compromise for President Trump. When Trump announced the phase-one deal last month, he suggested that tariffs would be frozen at their current rate in exchange for China purchasing more U.S. goods. It has been China’s contention all along that Washington remove all tariffs before pressing forward on a trade agreement.

As WSJ reports, White House officials have been unsuccessful in convincing China to let the U.S. establish enforcement offices as part of a trade deal. Trump’s top trade negotiator Robert Lighthizer said last month that both countries have established a “workable dispute settlement mechanism” and that it was the final issue both sides were tackling.