WASHINGTON, Aug 18 (Reuters) – U.S. yields backed off earlier highs on Tuesday after two straight upward trading sessions, switching directions amid a global bond selloff that saw long-term borrowing costs in major economies edge toward their highest levels in decades.
The change in sentiment came amid a week light on economic data or other catalysts to set a firm direction in thin summer trading, leaving markets to parse the latest developments in the U.S.-Iran conflict, analysts said.
“Economic data is light and malaise is high and between those two a gentle breeze could move things,” said Guy LeBas, chief fixed income strategist at Janney.
U.S. President Donald Trump said Tuesday no talks were taking place with Iran and none were scheduled, while insisting that the Strait of Hormuz was open, contradicting an Iranian assertion that the waterway remained closed to shipping.
Meanwhile, the Federal Reserve reported that July growth in U.S. industrial production had cooled by a tenth of a percentage point to 0.2%, undershooting economists’ expectations in part due to a decline in production of consumer goods.
Markets on Wednesday will turn to the Federal Reserve’s release of minutes from the most recent meeting of its monetary policy-setting Federal Open Market Committee for clues as to policymakers’ views on the path of interest rates. The U.S. is also due to auction 20-year bonds.
The yield on the benchmark U.S. 10-year Treasury note was last down 1.6 basis points to 4.708%. The yield on the 30-year bond fell 2.6 basis points to 5.284%.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a positive 52.9 basis points.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations for the Fed, fell 0.5 basis points to 4.177%.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.277% after closing at 2.253% on August 17.
The 10-year TIPS breakeven rate was last at 2.3%, indicating the market sees inflation averaging about 2.3% a year for the next decade.
(Reporting by Douglas Gillison in Washington; Editing by Sharon Singleton and Aurora Ellis)
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