Stabilizing European Markets Key to Treasury Yield Rebound

U.S. Government debt yields rebounded on Wednesday after a massive flight-to-safety rally the prior session triggered a steep drop in rates across the board.

The yield on the benchmark 10-year U.S. Treasury note settled around 2.826, while the yield on the 30-year U.S. Treasury bond was also higher at 3.013 percent.

The catalyst driving U.S. Treasury yields higher was stabilization of the European markets after a regular Italian bond auction proved better than feared. Political turmoil in Italy has rattled global financial markets in recent sessions, amid concerns over the prospect that snap elections in Rome could be framed as a de facto referendum on the country’s role in Europe.

Additionally, Italian bond yields, which spiked Tuesday amid the political turbulence, fell across the board Wednesday.

U.S. Economic Data

There were two major reports on Wednesday, the ADP Non-Farm Employment Change report, which is often used to gauge the strength or weakness of Friday’s U.S. Non-Farm Payrolls change, and Preliminary Gross Domestic Product.

According to the ADP Non-Farm Employment Change report, hiring decelerated in May with private employers adding 178,000 positions even amid signs of a tightening jobs market. Traders and economists were looking for an increase of 190,000. The April report was revised downward to 163,000, a decline of 41,000 from the original 204,000.

According to a government report on Wednesday, U.S. economic growth slowed slightly more than initially thought in the first quarter. The weakness could be attributed to downward revisions to inventory investment and consumer spending, but income tax cuts are likely to boost activity this year.

The Commerce Department reported on Wednesday that Gross Domestic Product increased by 2.2 percent annual rate in its second estimate of first-quarter GDP on Wednesday. This was lower than the previously reported 2.3 percent pace. The U.S. economy grew at a 2.9 percent rate in the fourth quarter.

U.S. Equity Markets

The major U.S. stock indexes posted a dramatic reversal after the prior session’s steep drop, fueled by a recovery in financial stocks and as Italian credit fears eased.

Negotiations between the United States and China also captured Wall Street’s attention on Wednesday. According to The Wall Street Journal, citing sources, the Trump Administration’s decision on Tuesday to continue to pursue tariffs on $50 billion worth of Chinese exports could stall talks.

Sources told the Journal that while a U.S. advance team landed in Beijing Wednesday to prepare for Commerce Secretary Wilbur Ross’s arrival later in the week, the Trump administration’s pursuit of $50 billion in taxes could jeopardize the meeting altogether.