Treasury yields rose on Thursday as traders braced for key economic data that will give an update on the manufacturing sector’s health, which has come under pressure from a lack of resolution to U.S.-China trade tensions.
Investors continued to try to make sense of Federal Reserve Chairman Jerome Powell’s press conference after the U.S. central bank cut rates by 25 basis points on Wednesday.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -2.63% rose 2.1 basis points to 2.042%, while the 30-year bond rate TMUBMUSD30Y, -2.16% was up 1.8 basis points to 2.544%. The 2-year note yield TMUBMUSD02Y, -2.14% was up 0.6 basis point to 1.894%. Debt prices move in the opposite direction of yields.
What’s driving Treasurys?
The Institute for Supply Management’s manufacturing gauge for July is expected to come in at 51.9%, but has fallen sharply in the past few months. Still, any number above 50% represents an expansion of economic activity.
Analysts are wary of the U.S. factory slowdown, following data in July that showed industrial production had been down for two straight quarters.
As for the Fed, despite Powell’s remarks casting July’s rate cut as only an insurance move, many bond investors say the U.S. central bank could still lower rates again.
See: How the Fed and Jerome Powell sent ‘a bit of a shock wave’ through financial markets
Meanwhile, the Bank of England left the policy rate unchanged at 0.75%, but cut its economic growth forecast for 2019 to 1.3% from 1.5%. The U.K. central bank noted the impact of Brexit-related uncertainty on business investment, adding that the economy had a one in three chance of falling into a recession.
The 10-year U.K. government bond yield TMBMKGB-10Y, -5.19% fell 1.6 basis points to 0.604%.
Read: Bank of England says it would lift rates if Brexit ‘smooth’ and global economy recovers
What did market participants say?
“The Fed is unlikely to be done at just one 25 bps cut but note the distinction he made in his press conference between a rate cut cycle during the precipice of an economic recession and a mid- cycle-esque insurance cut phase, which is in line with their view that the Fed wants to do at least one more before pausing for a while,” wrote Peter Schaffrik, global macro strategist at RBC Capital Markets.
