Bonds: Treasuries and Gilts edge higher on Chinese data

Yields ended the day lower as traders positioned themselves for the release of a raft of top-tier macroeconomic data which was due for release throughout the rest of the week, including Tuesday’s retail sales data.

The yield on a 10-year US Treasury finished the day two basis points lower at 1.93% after hitting an intra-day high of 1.98%.

Acting as a backdrop, on Monday China’s customs bureau reported a 15% year-on-year drop in the country’s exports in March. That was far less than expected by markets. However, analysts at Capital Economics were confident it only reflected a seasonal disruption to output and not weakness in demand.

The difference between the yield on US Treasury two-year notes and ten-year debt increased to as much as 1.42 percentage points, its most in a month.

Rating agency Fitch on Monday evening affirmed the US long-term sovereign credit ratings at AAA, citing the strength of the country’s economy, capital status and the fact it is the issuer of the world’s main reserve currency.

Also at the start of the week, Federal Reserve bank of New York Vice-President Simon Potter echoed recent warnings from fellow policymakers regarding the risk that greater regulation and use of automated trading systems could lead to a repeat of the bout of volatility seen in the US Treasury market in October 2015.

In that same regard, on Tuesday Bloomberg reported that this year the Bank of England will “stress test” lenders’ trading books to see how their capital positions would cope with periods of reduced liquidity.

The yield on 10-year Gilts was also two basis points higher at the end of trading, at 1.6%, as analysts waited on Tuesday’s ONS report on consumer price inflation.