Bond Report: Treasury Yields Rise Amid Healthy Economic Data And Higher Stocks

Treasury prices fell Thursday, pushing yields higher, as the rally in the stock market and solid economic data weighed on demand for haven assets like government paper.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -0.37% rose 2.7 basis points to 2.407%. The 2-year note yield TMUBMUSD02Y, -0.21% climbed 3.9 basis points to 2.207%, while the 30-year bond yield TMUBMUSD30Y, -0.14% was up 1.8 basis point to 2.841%. Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

Investors monitored U.S.-China trade developments after Treasury Secretary Steven Mnuchin said on Wednesday he expected to fly to Beijing to resume trade talks.

But optimism on progress toward a trade resolution waned after President Donald Trump signed an executive order that would enable the U.S. to ban U.S. companies from buying telecoms equipment of “foreign adversaries.” Analysts say though the order doesn’t directly name companies, the move would hurt Chinese telecoms giant Huawei, which has looked to dominate the market for 5G technology networks.

Trade headlines continued to leave ripples in the stock-market, but equity investors remain hopeful for a deal.

The S&P 500 SPX, +0.89% and the Dow Jones Industrial Average DJIA, +0.84% clinched a three-day winning streak, following better-than-expected corporate earnings.

Investors also digested better data pointing to strength in the labor market and the broader economy.

Housing starts for April rose 6% to an annual pace of 1.24 million from 1.17 million in the previous month. Weekly jobless claims for the week ending in May 11 fell to 212,000, from 228,000. The Philadelphia Fed’s manufacturing index rose to a four-month high of 16.6 in May, after a reading of 8.5 in April.

What did market participants say?

“Lots of noise this week on the trade war front and from choppy retail sales, but our take is that the U.S. economy remains on solid footing,” said Jeffrey Cleveland, chief economist at Payden & Rygel.

“Similarly, it’s premature for investors to price in rate cuts from the Federal Reserve based on the recent run of the data,” said Cleveland.

See: Stock futures edge higher as investors weigh latest trade salvos

Read: Huawei fails to rattle European markets

What else is on investors’ radar?

As for the Federal Reserve, Minneapolis Fed President Neel Kashkari said the central bank needed to allow inflation to modestly push above 2% to demonstrate its intent to achieve an average inflation rate at around the central bank’s target.

Fed Gov. Lael Brainard said the Fed should allow inflation to run hotter than usual, and that the central bank should protect against financial instability through other tools like capital requirements.

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