Markets News

TREASURIES-Yields steady after wild night as Iran fears recede

NEW YORK, Jan 8 (Reuters) - U.S. Treasury yields were steady on Wednesday morning, retracing their overnight drop as investor concerns eased about the conflict between Iran and the United States.

Overnight, the 10-year yield dropped to 1.705%, its lowest in more than a month as worried investors bought Treasuries in a safe-haven move when Iranian forces fired missiles at military bases housing American troops in Iraq.

The attack, retaliation for the U.S. killing of an Iranian general, raised the stakes in its conflict with Washington and feeding concern of a wider war in the Middle East.

Tehran’s foreign minister said Iran took “proportionate measures” in self-defense and did not seek to escalate the confrontation. The Treasury market retraced that move after U.S. President Donald Trump gave an initial response on Twitter: “All is well!”.

Trump, who ordered the drone strike that killed General Qassem Soleimani in Baghdad on Friday, said casualties and damage from the missile attacks were being assessed. The White House said the president would make a statement at 11 a.m. (1600 GMT).

The 10-year yield was last 0.7 basis point lower to 1.818%, recouping nearly all of its overnight drop as demand for the safe-haven security receded.

“I think the hope now is that this is a kind of off-ramp for this march toward war between Iran and the U.S. and hopefully some cooler heads will prevail here and say ‘enough is enough,’” said Stan Shipley, macro research analyst at Evercorse ISI.

“That’s what Treasury markets are suggesting, that’s what global equity markets are suggesting and that’s what the foreign exchange market is suggesting.”

Yields across maturities have moved roughly in step with the 10-year since late Tuesday. The two-year was last down 0.4 basis point to 1.542% having hit a three-month low in overnight trade of 1.452%.

Other safe-haven assets like the Japanese yen had also stabilized, having hit a three-month high of 107.63 yen per dollar overnight.

The return of risk appetite may dent demand in the auction of $24 billion new 10-year notes by the Treasury Department later on Wednesday.

“I think it makes the auction very questionable here. It depends on Trump’s statement this morning. If it’s neutral then it looks like demand for the 10-year Treasury will not be that good. If he’s bellicose and signals that he’s going to retaliate, then demand may firm, there might be a flight to safety,” said Shipley. (Reporting by Kate Duguid; Editing by David Gregorio)