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2-year Treasury rate up for fifth day on Biden’s optimism in debt-ceiling deal

Treasury yields jumped on Wednesday, sending the 2- and 10-year rates to their highest levels in almost a month, after President Joe Biden expressed confidence about the ability to reach a U.S. debt-ceiling deal.

What happened

  • The yield on the 2-year Treasury 

    rose  8.4 basis points to 4.156% from 4.072% on Tuesday. Wednesday’s level is the highest since April 21. The 2-year rate is up 25.7 basis points over the past five trading days, according to 3 p.m. figures from Dow Jones Market Data.

  • The yield on the 10-year Treasury 

    advanced 3.2 basis points to 3.580% from 3.548% on Tuesday. Wednesday’s level is the highest since April 19. The 10-year yield is up 18.4 basis points over the last four trading sessions.

  • The yield on the 30-year Treasury

    rose less than 1 basis point to 3.878% from 3.871% late Tuesday. Wednesday’s level is the highest since March 7. The 30-year rate is up 13.1 basis points over the past four trading days.

What drove markets

During a brief speech at the White House on Wednesday, Biden was upbeat about progress on the U.S. debt ceiling and said he was “confident” about reaching an bipartisan agreement as discussions continue in coming days. “America will not default,” the president said. 

Meanwhile, housing data released earlier in the day came in mixed. U.S. construction of new homes rose 2.2% in April, to a 1.4 million annual pace — roughly matching economists’ expectations on Wall Street. However, building permits, a sign of future construction, fell 1.5% to a 1.42 million rate.

Some analysts are considering the possibility that the U.S. economy may be stronger than originally thought, after Tuesday’s data showed a slight rebound in U.S. retail sales for April and industrial production rose after two flat months. However, fresh worries emerged about China’s disappointing reopening recovery and whether it could drag down U.S. and global growth.

Read: ‘Survival of the strongest’: How pandemic-era shifts may upend market’s recession narrative

See also: China’s reopening recovery is running out of steam and starting to worry financial markets

Wednesday’s $15 billion auction of 20-year Treasury bonds came in “strong,” according to BMO Capital Markets strategist Ben Jeffery.

On Friday, Federal Reserve Chairman Jerome Powell is set to make an appearance and investors will be looking to see if he provides any new guidance on the path of interest rates.

What analysts are saying

President Biden and House Speaker Kevin McCarthy “continue to spar in the headlines, but we are starting to see enough common themes in their views to feel confident that a deal is going to be announced in relatively short order,” said Thomas Simons, a U.S. economist at Jefferies.

“Given the June 1 x-date warnings from Treasury and the time it takes for the legislative process to play out, we could see an announcement of a framework as soon as Sunday when Biden returns from his trip to Japan for the G-7 meetings,” Simons wrote in a note on Wednesday.

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