Treasury Yields Retreat as Government Reopens

U.S. Treasury yields dropped on Tuesday in response to the end of the government shutdown. On Monday, the U.S. House of Representatives and the U.S. Senate reached an agreement to fund the government until February 8. The bill was later signed by President Trump. The lower yields may have contributed to the weakness in the U.S. Dollar.

The yield on the benchmark 10-year U.S. Treasury Note fell to 2.628 percent, while the yield on the 30-year U.S. Treasury Bond also slipped to 2.903 percent.

In other news, the Treasury Department auctioned $26 billion in 2-year Notes at a high yield of 2.066 percent. The bid to cover ratio, an indicator of demand, was 3.22. Indirect bidders, which include major central banks, were awarded 58.3 percent.

The World Economic Forum (WEF), began on Tuesday. Investors will be looking for any key remarks about the state of global growth and the U.S. economy.

Forex Markets

March U.S. Dollar Index futures hit a three-year low on Tuesday, led by the strength in the heavily weighted index component Euro. The single currency was boosted by a report which showed Euro Zone consumer confidence jumped much more than expected in January, underlining the strong momentum in the Euro Zone economy.

The European Commission said consumer confidence in the 19 Euro Zone countries in January rose 1.3 points from 0.5 points in December, well above the market consensus of a rise to 0.6.

The USD/JPY gave back its early gains to close lower for the session on Tuesday. Traders were reacting to Bank of Japan’s decision to leave monetary policy unchanged.

The BOJ said risks to prices were still tilted to the downside, though it did offer a more upbeat view on inflation expectations, saying they were “moving sideways recently.” In October, the central bank described them as being weak.

The GBP/USD also closed higher. The Forex pair pushed above the $1.4000 mark, higher than it was on Brexit Referendum Day. The rally was fueled by growing optimism about the U.K. economy and protracted dollar weakness. Investors are also less-worried about the terms of Britain’s exit from the European Union.

Gold

Gold was supported on Tuesday by a weaker U.S. Dollar, but gains were limited by increased demand for higher risk assets. Additionally, the end of the uncertainty created by the three-day government shutdown may have also caused a few speculators to lighten up on the long side.

Gold may have also been supported by a drop in U.S. Treasury yields. Some gold buyers are betting on a correction in the U.S. stock market while others are saying that a March rate hike by the Fed has already been priced into the market.

Crude Oil

U.S. West Texas Intermediate and international-benchmark Brent crude oil surged on Tuesday in reaction to a bullish statement from the International Monetary Fund (IMF) from Monday.

The IMF revised upward its forecast for world economic growth to 3.9 percent for both 2018 and 2019, a 0.2 percentage point increase from its last update in October.

U.S. Stock Market

The three major U.S. stock indexes finished mixed on Tuesday after reaching record highs. Netflix led the NASDAQ Composite to a record close. The S&P 500 Index was helped by a rally in Whirlpool stock and a sharp rise in crude oil. The blue chip Dow Jones Industrial Average also reached an intraday record, however, it was unable to sustain the gains and turned lower for the session.

The selling pressure in the Dow was generated by mixed earnings reports from several Dow components. Johnson & Johnson, Procter & Gamble and Travelers Cos. all reported better-than-expected earnings and revenue on Tuesday. Verizon, another Dow component, posted a profit that missed expectations, while sales surpassed analyst estimates.