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U.S. Treasury prices retreated Monday, pushing up yields, after data showing a rebound in Chinese manufacturing activity helped to ease worries over the global economic outlook.
The yield on the 10-year Treasury note TMUBMUSD10Y, +3.45% rose 5.7 basis points to 1.837%, while the 2-year Treasury yield TMUBMUSD02Y, +2.00% was up 2.8 basis points at 1.632%. The 30-year Treasury bond yield TMUBMUSD30Y, +3.50% rose 7 basis points to 2.271%. Yields and debt prices move in opposite directions.
“Speculation that global manufacturing might be over the worst of the downturn is lifting bond yields and, we can add to this the move from easing to stability among major central banks such as the Fed” and European Central Bank, said Steve Barrow, head of G-10 strategy at Standard Bank, in a Monday note.
The Caixin manufacturing purchasing managers index rose to 51.8 in November from 51.7 in October, Caixin Media Co. and research firm Markit said Monday — with the reading remaining above the 50 level that separates expansion from contraction. Earlier, China’s official manufacturing PMI reading moved back into expansion activity, rising to 50.2 in November from 49.3, according to the country’s National Bureau of Statistics, marking the first reading above 50 for the index since April.
Barrow, however, cautioned that it might be premature to signal the global all-clear after a bout of trade-related weakness over the past couple of years. PMI readings across many countries remain near the mid-40s, which appears to be a “natural base,” he said.
“While it is still gratifying that PMI surveys might have stopped falling at this ‘natural’ base, rather than weaken towards the ‘crisis’ levels, there are ominous signs that the manufacturing weakness is still weighing on the — much bigger — service sector,” he wrote. “Until services start to stabilize as well, we think it is unwise to believe that central banks have stopped easing or that bond yields are likely to shoot higher.”
Still, central banks likely have completed the bulk of the easing in store in the current “mini-cycle,” Barrow said, adding that bond yields are likely to edge higher over time as the global economy eventually rights itself.
U.S. investors will get a look at November manufacturing activity on the home front, with the Markit manufacturing purchasing managers index due for release at 9:45 a.m. Eastern, followed by the more closely watched Institute for Supply Management manufacturing index at 10 a.m. Eastern. The ISM index is forecast to rise to 49.2% from an October reading of 48.3%.
Separately, October construction spending data is also due at 10 a.m. Eastern and is forecast to show a rise of 0.4%.
