U.S. Treasury yields followed global stock-markets higher Monday, amid positive economic reports from China and growing hopes for a de-escalation of tensions between Beijing and Washington, following the announcement of a phase-one trade deal last week.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -0.51% rose 7 basis points to 1.890%, while the 2-year note rate TMUBMUSD02Y, -0.49% picked up 3.9 basis points to 1.643%. The 30-year bond yield TMUBMUSD30Y, -0.11% was up 5.7 basis points to 2.309%.
Bond prices fall as yields climb.
What’s driving Treasurys?
Rates for government debt are on the rise as equity benchmarks in Europe and Asia jumped on the so-called phase one U.S.-China trade deal, even though some analysts said underlying details on the agreement were lacking. The S&P 500 SPX, +0.71% and the Dow Jones Industrial Average DJIA, +0.36% and Nasdaq Composite Index COMP, +0.91% all closed at records Monday and marked their fourth straight gain.
U.S. Trade Rep. Robert Lighthizer said on an interview with CBS that the deal was “totally done,” and White House economic adviser Larry Kudlow said it was “absolutely completed.” The trade agreement will now await President Donald Trump’s signature, but reports indicate that Chinese officials harbor a more cautious tone surrounding the partial trade accord.
A round of data that could point to signs of stabilization in China and the eurozone also helped to weigh on demand for haven assets. Chinese industrial output for November rose 6.2% from a year earlier, accelerating from a 4.7% year-over-year increase in October. The eurozone composite purchasing managers index rose slightly to 50.6 in December from 50.3 in the prior month, thanks to the service sectors’ resilience.
In U.S. data, the Empire State business conditions index showed subdued conditions for manufacturing in the region. The index inched up 0.6 point to 3.5 in December, the New York Fed said Monday. Economists had expected a reading of 4.0, according to a survey by Econoday.
The flash composite readings from the Markit purchasing managers survey rose slightly to 52.2 in December, from 52 in the previous month. Any number above 50 reflects an improvement in economic activity. The National Association of Home Builders also reported its confidence index rose to 76 this month, from 71 in the previous month.
The closely watched Treasury International Capital Report showed Japan continued to hold the crown as the largest holder of U.S. government debt. The third-largest economy in the world held $1.17 trillion of Treasurys in October, from around $1.15 trillion in September.
What did market participants’ say?
“The trade tensions should ease from here onwards. Whilst it is not guaranteed that the ‘phase 1 ’ deal will be endorsed by the Chinese side, too, it looks very likely that an agreement will be found and that there is no further escalation at this stage,” said Peter Schaffrik, a global macro strategist at RBC Capital Markets, in a note.