Treasury yields tick lower as investors brace for midterms

Treasury yields were slightly lower in early Monday trading, after a sharp climb last week, as investors geared up for a week that includes midterm elections that could see Republicans cede control of the House, as well as a Federal Reserve policy meeting.

The 10-year Treasury note yield

TMUBMUSD10Y, +1.97%

 was down 0.7 basis point to 3.207%, the 2-year note yield

TMUBMUSD02Y, -0.56%

 fell 0.9 basis point to 2.903%. The 30-year bond yield

TMUBMUSD30Y, +2.00%

 traded flat at 3.453%, around its highest levels in more than four years. Bond prices move in the opposite direction of yields.

Investors are preparing for the midterms as analysts anticipate a split Congress with the Democrats taking over the House, leaving the Senate to Republicans. This potential for political gridlock has split Wall Street as market participants debate whether a legislative impasse would be benign for risk assets.

See: Stock-market bulls hope midterms revive upside momentum

But investors say the more material concern is continued trade tensions between the U.S. and China. Optimism for progress on the trade front rose Friday after President Donald Trump said he was making headway in negotiations, remarks that came after his chief economic adviser, Larry Kudlow, said the White House was not on “the cusp of a deal,” in an interview with CNBC.

Read: Evidence that U.S.-China trade talks are the biggest catalyst for the stock market

“Regardless of who takes the House, I don’t expect any legislation of substance in the next two years that would matter for markets and the economy. The administration got what it wanted in the tax bill. Maybe most relevant in the short term, the results could determine the negotiating stance of the Administration with China in the eyes of both Trump and Xi,” wrote Peter Boockvar, chief market analyst for the Bleakley Advisory Group.

New York Fed President John Williams is set to speak at 8:30 a.m. Eastern, followed by Dallas Fed President Robert Kaplan at 7 p.m. This comes ahead of the Federal Open Market Committee’s meeting from Wednesday to Thursday, with analysts expecting the policy-making group to stand pat until December. The gradual but steady pace of rate increases has pushed yields higher across the bond market, pressuring equities amid fears of higher borrowing costs for corporations.

On the data front, the Institute for Supply Management’s services gauge is slated to come out at 10 a.m. Economists polled by MarketWatch anticipate a reading a of 58.6% in October, falling from 61.6% the previous month.

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