NEW YORK, Sept 4 (Reuters) - The U.S. Treasury yield curve on Wednesday was its steepest in more than two weeks as risk sentiment improved, driving longer-dated yields higher, following the easing of geopolitical tensions in Hong Kong and Great Britain.
In morning trade, safe-haven assets such as the U.S. dollar and the Japanese yen fell and U.S. equities rose. The benchmark 10-year yield was 0.6 basis point higher to trade at 1.472% and the 30-year bond yield was up 2.3 basis points to 1.973% after falling near all-time lows on Tuesday.
Hong Kong leader Carrie Lam on Wednesday withdrew an extradition bill that triggered months of often violent protests so the Chinese-ruled city can move forward from a “highly vulnerable and dangerous” place and find solutions.
Also on Wednesday, British Prime Minister Boris Johnson demanded an Oct. 15 snap election after lawmakers seeking to prevent a no-deal Brexit dealt him a humiliating defeat in parliament. Parliament’s move leaves Brexit up in the air, with possible outcomes ranging from a turbulent no-deal EU exit to abandoning the whole endeavor.
The spread between two- and 10-year Treasury yields , the most commonly used measure of the yield curve, rose to its highest since Aug. 21 at 3.3 basis points. The curve inverted on Aug. 14 for the first time since 2007 - a widely accepted indicator of coming recession.
Longer-dated yields were also driven higher by “a very heavy corporate calendar, which is causing hedging to happen in Treasuries,” said Mary Ann Hurley, vice president, fixed income trading at D.A. Davidson, as traders sell Treasuries to offset long positions in new issues.
Nearly $27 billion of U.S. investment-grade debt from 21 issuers came to market on Tuesday, the busiest day on record in terms of numbers of borrowers seeking funding, according to IFR.
Federal Reserve members offered a range of views in speeches late Tuesday and early Wednesday, which comprehensively communicated a moderate position on monetary policy going forward.
“We’ve had a number of Fed speakers already today and they seem to be balancing each other out,” said Hurley. On Tuesday, St. Louis Fed President James Bullard called for a 50-basis point rate cut. Less than an hour later, Boston Fed President Eric Rosengren said he saw no immediate need for any move.
Dallas Federal Reserve Bank President Robert Kaplan said Wednesday he is focused on assessing whether weakness in manufacturing spreads to consumer spending. New York Federal Reserve President John Williams said he is ready to “act as appropriate” to help America avoid an economic downturn. (Reporting by Kate Duguid Editing by Nick Zieminski)