Bond Report: Treasurys soar on safe haven bid after deadly U.S. strike against Iran general

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U.S. Treasury yields tumbled on Friday after an American drone strike on Iran general Qassem Soleimani raised worries of a U.S. conflict against the Middle East military powerhouse.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -2.56%   slipped 7.3 basis points to 1.809%, while the 2-year note rate TMUBMUSD02Y, -2.31%   was down 4 basis points to 1.535%. The 30-year bond yield TMUBMUSD30Y, -2.27%   retreated 7.4 basis points to 2.266%. Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

Geopolitical risk came to the fore again at the beginning of this year after news reports said President Donald Trump had ordered the assassination of Soleimani in Baghdad, Iraq. Soleimani was the leading commander of Iranian military operations in Syria and Iraq, and his death is expected to escalate tensions in the Middle East.

This comes after tit-for-tat strikes between the two sides, including Iran’s well-honed assault against Saudi Arabia’s oil facilities.

Investors will also face some U.S. economic data in the morning, but will be seen as secondary to the geopolitical concerns that reared their head this week. The Institute for Supply Management’s U.S. manufacturing purchasing managers index for December is due at 10 a.m. ET, along with November’s numbers on construction spending. MarketWatch-polled economists anticipate the factory gauge to come in at 48.8%.

It will also be a busy day for observers of the Federal Reserve which will release their minutes from the December meeting. Senior Fed officials will give their thoughts throughout the day, with Dallas Fed President Robert Kaplan, San Francisco President Mary Daly, Fed Gov. Lael Brainard and Richmond Fed President Thomas Barkin all set to speak on Friday.

What did market participants’ say?

“The U.S. strike takes the spotlight off the trade war with China until Iran has retaliated and re-centres the trading theme for early 2020 on geopolitics and US foreign policy. Perhaps this should not be a complete surprise as Trump prepares for his re-election campaign,” wrote Kenneth Broux, a strategist at Société Générale. “Iran’s response and danger of escalation will set the tone for markets in the coming days.”

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