US bond returns fall as investors assess effect of China’s reopening

The performance of the 10-year US Treasury bonds fell on Wednesday, after the biggest one-day jump in just over two months during the previous session, as investors gauged the impact of policy reopening of china on the path of interest rate hikes by the Federal Reserve.

While China has quickly reversed course from its previous “no covid” policy this month, a move that is likely to benefit the global economy, the change has led to a surge in cases that could hamper activity in the near term.

The yield on the 10-year Treasury note fell 1.5 basis points to 3.843%. On Tuesday, the yield jumped 11.1 basis points, its biggest one-day increase since Oct. 19, to hit a five-week high of 3,862%.

“If the 10-year bond gets to 4%, the floodgates will open, there will be a lot of buying at that level,” said Jay Sommariva, managing partner and head of asset management at Fort Pitt Capital Group in Pittsburgh.

After hitting a nearly three-month low on Dec. 7, as hopes were growing that the Fed would signal the end of its rate-raising cycle was on the horizon, the 10-year yield has risen steadily.

Last week, the 10-year benchmark posted its biggest weekly gain in eight and a half months, just after the announcements of Fed monetary policythe Bank of England and the European Central Bank.

The profitability of 30 year treasury bond fell 0.2 basis points to 3.941%.

A closely watched portion of the yield curve that measures the gap between two-year and 10-year note rates, viewed as a proxy for economic expectations, stood at -49.3 basis points.

More supply will hit the market on Wednesday when the Treasury auctions off $43 billion in five-year notes.

Meanwhile, the two-year return, which generally moves in step with interest rate expectations, was down 3.3 basis points to 4.335%.