2019.12.1319:20:00UTC+00Treasuries Show Strong Move Back To The Upside

Following the steep drop seen in the previous session, treasuries showed a strong move back to the upside during trading on Friday.

Bond prices initially showed a lack of direction but climbed firmly into positive territory as the day progressed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, slid 7.8 basis points to 1.819 percent.

While indicators U.S. and Chinese negotiators were close to an agreement contributed to the sharp decline on Thursday, today's rebound came on the heels of the official announcement of a phase one trade deal.

The agreement includes suspending planned tariffs on Chinese goods as well as scaling back existing tariffs in exchange for Chinese structural reforms and purchases of U.S. goods.

The announcement of the agreement comes just two days before a new 15 percent tariff on approximately $160 billion worth of Chinese goods was set to be imposed.

In addition to suspending the new tariffs, the U.S. agreed to cut the tariffs on approximately $120 billion worth of Chinese goods imposed on September 1st to 7.5 percent from 15 percent.

However, the office of U.S. Trade Representative Robert Lighthizer said a 25 percent tariff on approximately $250 billion worth of Chinese goods will remain in place.

Chinese officials suggested the existing tariffs would continue to be phased out, but that was not confirmed by the statement from the USTR.

In return for the lower tariffs, China has agreed to make structural reforms and other changes to its economic and trade regime in the areas of intellectual property, technology transfer, agriculture, financial services, and currency and foreign exchange.

China has also committed to make substantial additional purchases of U.S. goods and services in the coming years, the USTR said.

U.S. and Chinese officials did not specify the dollar amount of purchases of U.S. goods, which was said to be one of the key sticking points in the negotiations.

President Donald Trump called the phase one deal an "amazing deal for all" and said negotiations on a phase two deal would be begin "immediately, rather than waiting until after the 2020 Election."

The phase one deal still needs to go through legal procedures as the U.S. and China move toward officially signing the agreement.

With the focus on trade news, traders largely shrugged off a report from the Commerce Department showing U.S. retail sales rose by much less than expected in the month of November.

The Commerce Department said retail sales edged up by 0.2 percent in November after climbing by an upwardly revised 0.4 percent in October.

Economists had expected retail sales to climb by 0.5 percent compared to the 0.3 percent increase originally reported for the previous month.

Excluding an increase in auto sales, retail sales inched up by 0.1 percent in November after rising by 0.3 percent in October. Economists had expected ex-auto sales to increase by 0.4 percent.

With the phase one trade deal finally nearing the finish line, next week's trading may be impacted by reaction to reports on homebuilder confidence, housing starts, industrial production, existing home sales and personal income and spending.