Article Highlights

  • U.S. 10-year note, 30-year bond yields hit six-week low
  • North Korea says considering missile strike on Guam
  • Drop in yields could weigh on U.S. 10-year auction
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U.S. Treasury yields fell on Wednesday, with those on the benchmark 10-year note hitting a six-week low, as heightened tensions between the United States and North Korea stoked demand for U.S. government debt and other safe-haven assets.

U.S. 30-year bond yields, which move inversely to prices, also dropped to a six-week trough, while those on U.S. two-year notes matched a low hit four weeks ago.

North Korea on Wednesday said it was considering a missile strike on the U.S. Pacific territory of Guam. That threat followed President Donald Trump’s remarks on Tuesday that any North Korean threat to the United States would be met with “fire and fury.”

“The most visible impact of escalating verbal threats between North Korea and President Trump comes at the long end of the U.S. Treasury curve,” said Jim Vogel, interest rates strategist, at FTN Financial in Memphis, Tennessee.

“Intermediates, including 10s, fell within reasonable one-day boundaries similar to recent moves related to central bank or economic news,” he added.

U.S. 10-year yields hit 2.212 percent, the lowest since June 28 and nearly 7 basis points lower than Tuesday’s close, Reuters data showed. By mid-morning trading, yields were at 2.26 percent.

U.S. 30-year bond yields slid to a six-week trough of 2.790 percent, compared with 2.867 percent late on Tuesday. Yields were last at 2.806 percent.

U.S. 2-year yields touched a low of 1.323 percent, matching a low hit four weeks ago. Yields last changed hands at 1.330 percent, compared with Tuesday’s 1.363 percent.

The drop in 10-year yields could be problematic for the $23 billion, U.S. 10-year note auction later on Wednesday, analysts said. The 10-year note needed to sell off more in price to attract buyers.

Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets in New York, however, pointed out that the fall in yields should not necessarily be a deterrent for investors.

Lyngen said volume in 10-year notes overnight was high as the sector accounted for a 41 percent share of the market’s turnover even as overall flows jumped to the highest level since late-July.

“This dynamic has historically boded well for the auction takedown and when combined with the tensions surrounding the Korean peninsula we struggle to find any reason to fade demand for new 10s,” said Lyngen.