U.S. government bond yields pop higher after upbeat economic reports

U.S. Treasury yields rose Thursday midday after data painted a relatively healthy picture of the domestic economy, supporting modest selling of government paper that has mostly attracted bids over the past week, despite a rally in stocks, which ordinarily rise in step with bond yields.

The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, +1.47% was last up 2.4 basis points 1.812%, while the 2-year Treasury yield TMUBMUSD02Y, +1.05% added 1.2 basis points to 1.572%.

The 30-year Treasury bond yield TMUBMUSD30Y, +1.14%, also known as the long bond, picked up 2 basis points to 2.263%.

Yields rise as bond prices fall.

Trading surrounding U.S. government debt had been relatively muted until a batch of data fueled further appetite for risk taking, pushing the Dow Jones Industrial AverageDJIA, +0.58% and the S&P 500 index SPX, +0.57% higher, and away from assets perceived as havens.

Indeed, a closely watched reading of business conditions in the Philadelphia area, the Philadelphia Fed manufacturing index, produced its highest reading in eight months. The regional Fed bank’s index rose to 17 in January from 2.4 in the prior month. On top of that, a report on new jobless claims fell for the fifth week in a row and retail sales increased 0.3% last month, the government said Thursday.

Still, the benchmark 10-year yield was trading in a relatively tight range between 1.90% and about 1.71%, according to FactSet data, bonds traders emphasized.

Bond-market investors haven’t reacted substantially to the signing of the partial trade accord between the U.S. and China that was completed at the White House on Wednesday.

The Wall Street Journal writes that the eight-part trade agreement, ending the 18-monthlong Sino-American clash, leaves in place U.S. tariffs on about $370 billion in Chinese goods, or about three-quarters of Chinese imports to the U.S.

In other news, on Thursday, the Senate passed the U.S. Mexico-Canada Agrement, as expected, in an 89-10 vote, forging the way forward for two trade agreements that have been revamped by the Trump administration. President Donald Trump is expected to sign the USMCA next week.

Meanwhile, minutes from the European Central Bank’s minutes from the December meeting, was relatively upbeat on eurozone inflation, noting that there were “mild indications” that core inflation was rising. However, it was more subdued about the state of the overall economy, which it described as weak. “There were likely two main reasons why yields had not continued on an upward trajectory. First, the outlook remained less favourable than at the start of 2019 and there was still no breakthrough in the resolution of the two major risk factors currently facing the global economy, i.e. the imposition of tariffs and Brexit,” the account of the ECB meeting read.

The ECB meeting was the first headed by new chief Christine Lagarde.

“If anything the takeaway is that the data was more constructive than expected and higher Treasury yields follow intuitively,” Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, told MarketWatch.

“Frankly, it has been the deal that no one wants. It is a bit of can-kicking maneuver which is why there has been a relatively limited response,” Lyngen said of government-debt investors’ response to the U.S.-China phase-one trade deal. He said any breakout in yields outside of its range will be contingent on the what the Fed communicates at its policy meeting later this month and a sustained calm on the geopolitical front.

The rate-setting Federal Open Market Committee headed by Jerome Powell convenes for a two-day gathering starting Jan. 28.

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