US government bond yields rose on Thursday, stopping a two-tier series of gains that anchored interest rates after the data showed a relatively healthy picture of the domestic economy and supported the modest sale of government paper, which for the most part has been bid over the past week had led.
How do Treasuries develop?
The return on the 10-year US Treasury note
TMUBMUSD10Y, + 0.44%
increased by 2.1 basis points to 1.809%. The 30-year government bond yield
TMUBMUSD30Y, + 1.00%.
Also known as the long bond, rose 1.8 basis points to 2.261%.
The 2-year Treasury yield
added 0.8 basis points to 1.568%.
So far, yields on the 10-year bond have lost 10 basis points in January, while yields on the long bond have lost 11.7. Short-term 2-year bonds rose only slightly by 0.9 basis points over the same period.
Yields rise with falling bond prices.
What drove the market?
US government bond trading was cautious until a series of data further increased risk appetite, driving the Dow Jones Industrial Average higher
DJIA, + 0.92%
and the S&P 500 index
SPX, + 0.84%
perceived as ports in record territory and away from assets.
In fact, the Philadelphia Fed Manufacturing Index, which closely monitored the economic situation in the Philadelphia region, was the highest in eight months. The Fed's regional index rose from 2.4 in the previous month to 17 in January. In addition, a report on new unemployment claims fell for the fifth week in a row, and retail sales rose 0.3% last month, the government said Thursday.
Nevertheless, the 10-year benchmark yield in January, according to FactSet data, was in a relatively narrow range between 1.95% and about 1.71%, stressed bond traders.
Bond market investors have not responded significantly to the signing of the US-China partial trade deal signed at the White House on Wednesday.
The Wall Street Journal writes that the eight-part trade agreement that ends the 18-month Sino-US conflict provides for US tariffs on Chinese goods valued at approximately $ 370 billion, or approximately three-quarters of Chinese imports into the United States.
In other news, the Senate expected to approve the US-Mexico Mexico-Canada agreement with 89-10 votes Thursday to pave the way for two trade agreements that have been revised by the Trump administration. President Donald Trump is expected to sign the USMCA next week.
Meanwhile, the December meeting of the European Central Bank's minutes was relatively positive for euro area inflation, as there were "mild signs" of a rise in core inflation. However, it was more cautious about the weak state of the overall economy. “There were probably two main reasons why yields hadn't continued on an upward trend. First, the outlook remained less favorable than at the beginning of 2019, and there was still no breakthrough in solving the two main risk factors for the global economy, namely the imposition of tariffs and Brexit, "the ECB meeting said.
The ECB meeting was led for the first time by the new boss Christine Lagarde.
What do strategists say?
"If anything, the data was more constructive than expected and intuitively higher yields for government bonds follow," said Ian Lyngen, head of the US rate strategy at BMO Capital Markets, to MarketWatch.
"Frankly, it was the deal that nobody wanted. It's a pretty kick maneuver, so there is a relatively limited response, ”said Lyngen of government bond investors' response to the US-China phase 1 trade agreement. He said any outburst of yields will depend on what the Fed says at its political meeting later this month and on continued calm on the geopolitical front.
The Federal Open Market Committee, led by Jerome Powell, will meet for a two-day meeting on January 28.