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U.S. Treasury yields slipped Thursday in the first trading session of 2020, even though investors were scooping up risk assets such as equities as fears of a global economic slowdown diminished and investors remained optimistic about a partial resolution of the U.S. – China trade war.
Most global markets were closed on Wednesday for New Year’s.
Where are bond yields trading?
The 10-year Treasury note yield TMUBMUSD10Y, -2.65% slipped 2.2 basis point to 1.887%, after the benchmark bond rate finished Tuesday trade lower on the session but higher on the month, up 13.1 basis points and the quarter, a gain of 23.4 basis points, according to Dow Jones Market Data.
The 2-year Treasury note TMUBMUSD02Y, -0.76% was 0.2 basis point wider at 1.561%, following a slight retreat in yields on Tuesday, and a decline of 4.3 basis points in December and a quarterly slide of 6.5 basis points.
The 30-year bond yield TMUBMUSD30Y, -2.25%, known as the long bond, pulled back by 3 basis points to 2.348%, following a gain in rates on Tuesday and a gain in December of 17.4 basis points and a quarterly rise of 25.9 basis points.
What’s driving government debt?
Bond investors appeared to take their cues from China’s central bank announcing that it would reduce its commercial banks’ reserve requirements. The 0.5-percentage-point cut in the reserve requirement ratio by the People’s Bank of China will inject more than 800 billion yuan ($114.9 billion) into the financial system.
Meanwhile, data on China showed that the manufacturing sector grew at a slower rate in December but remained in expansionary territory for a fifth straight month, according to the final Caixin purchasing managers index for the sector, released Wednesday, which fell slightly to 51.5 from a November reading of 51.8. A reading of 50 or above indicates improving conditions.
Those reports together with news Tuesday of a planned signing of a phase-one trade pact between the U.S. and China helped to boost stocks early Thursday with the Dow Jones Industrial Average DJIA, +0.60% and the S&P 500 index SPX, +0.46% opening higher.
Thin trading volumes in the Christmas holiday week meant that a trio of debt auctions last week drew the attention of bond buyers. Good results from all three sales helped to cap any yield surge, even as stocks trade near records. That fact has underlined how demand for bonds among income-starved investors may keep a check on a sharp selloff in Treasurys that would push yields much higher in 2020, bond experts speculate.
In other markets, 10-year German debt TMBMKDE-10Y, -23.86%, known as bunds, were seeing rates climb on Tuesday, with benchmark bunds at negative 0.206%, compared with negative 0.189% on Tuesday.
In U.S. economic data, markets absorbed a weekly employment report which showed that initial jobless claims — a rough measure of how many people are losing their jobs — slipped by 2,000 to 222,000 in the seven days ended Dec. 28, the government said Thursday.
What are market participants saying?
“As we noted in recent weeks, December and January are the biggest months for labor market turnover for the year so consequently there tends to be extreme volatility in the claims. This volatility led to the spike in claims to 252K during the first full week of the month,” wrote Thomas Simons, senior vice president of fixed-income economics at Jefferies, in a Thursday research note.
