US Treasury yields jump on increased hope for short-term debt limit plan

U.S. Treasury yields jumped Wednesday after top Democrats announced that they had President Trump's support for a short-term debt ceiling extension.

The yield on the benchmark 10-year Treasury note sat higher at 2.101 percent at 2:50 p.m. ET, while the yield on the 30-year Treasury bond was also higher at 2.72 percent. Bond yields move inversely to prices.

Yesterday, the 10-year note hit a low of 2.079 percent, its lowest level since November 2016, when it yielded as low as 1.991 percent.

US 10-YR
US 30-YR

President Donald Trump on Wednesday agreed to back a short-term debt ceiling extension and government funding measure as part of the package to approve relief funding for Hurricane Harvey, the top congressional Democrats said Wednesday.

Senate Minority Leader Chuck Schumer and House Democratic Leader Nancy Pelosi said that "the president and the congressional leadership agreed" to the proposal following a meeting at the White House. House Speaker Paul Ryan called the Democrats' proposal "ridiculous" and "unworkable."

Investors also digested a barrage of data Wednesday, starting with real estate numbers.

The U.S. trade deficit increased less than expected in July as both exports and imports fell. The Commerce Department said on Wednesday the trade gap rose 0.3 percent to $43.7 billion. Economists polled by Reuters had expected the trade shortfall widening to $44.6 billion for July.

Nonmanufacturing economic activity grew in August to a level that matched expectations by economists surveyed by Reuters.

The Institute for Supply Management's index registered 55.3 in August. This was a reversal from a decline in July, when the index hit 53.9.

US 10-year yield intraday chart

Source: FactSet

Mortgage applications moved slightly higher last week, spurred by refinancers, as interest rates moved decisively lower.

Total mortgage application volume increased 3.3 percent, from the previous week, according to the Mortgage Bankers Association's seasonally adjusted report. Volume remains 23 percent lower than the same week one year ago, when rates were even lower.

The Federal Reserve's Beige Book was also released Wednesday. The report found that the U.S. economy expanded at a modest to moderate pace in July through mid-August but signs of an acceleration in inflation remained slight.

"Prices rose modestly overall across the country," the central bank said in its Beige Book report of the economy, compiled from anecdotal evidence derived from business contacts nationwide.

Policymakers have raised interest rates twice this year but the prospect of a third in 2017 appears increasingly uncertain against a backdrop of weak price pressures.

Sticking with central banks, investors worldwide will be gearing for the latest meeting of the ECB on Thursday, where policymakers may shed light on whether it is time to unwind the bank's ultra-loose monetary policy which includes record low interest rates, in addition to the bank's asset purchase program.

Investors will be paying close attention to ECB President Mario Draghi's rhetoric, to see if he gives any hints as to where the bank's strategy could be heading.

In the political sphere, geopolitical concerns continue to wreak havoc on market sentiment with U.S. markets facing a turbulent session on Tuesday, after news emerged on Sunday that North Korea had conducted its sixth and most powerful nuclear test yet.

On Tuesday, the Dow Jones Industrial Average recorded its biggest one-day drop since August 17, falling 234.2 points to close at 21,753.31, as nerves escalated on the back of the political turbulence.

On the commodities front, oil prices were posting gains yet remained cautious on Wednesday with investors remaining on edge following the wrath of Storm Harvey, and the potential upcoming chaos that could be triggered by Hurricane Irma.

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