Bond Report: Treasury yields climb as upbeat China data and hope of a trade detente lift stocks

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U.S. Treasury yields followed global stock-markets higher on Monday amid positive economic reports from China and growing hopes for a de-escalation of tensions between Beijing and Washington, marking the largest economies in the world, following the announcement of a phase-one trade deal last week.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +2.05% rose 2.6 basis points to 1.849%, while the 2-year note rate TMUBMUSD02Y, +1.27% picked up 3 basis points to 1.634%, while the 30-year bond yield TMUBMUSD30Y, +1.37% was up 2.1 basis points to 2.272%.

What’s driving Treasurys?

Government bond rates were on the rise as equity benchmarks in Europe and Asia jumped on the so-called phase one U.S.-China trade deal, even though analysts said underlying details on the agreement were lacking. Stock-market futures for the S&P 500 SPX, +0.73% and the Dow Jones Industrial Average DJIA, +0.64% also pointed to a higher open for Wall Street.

U.S. Trade Rep. Robert Lighthizer said on an interview with CBS that the deal was “totally done.” The trade agreement will now await President Donald Trump’s signature, but some pointed out that Chinese officials were more cautious in expressing optimism on the deal’s success.

See: Here’s where the 10-year Treasury yield is headed in 2020 as Brexit and U.S. – China trade headwinds clear away

A round of data that could point to signs of stabilization in China and the eurozone also helped to weigh on demand for haven assets. Chinese industrial output for November rose 6.2% from a year earlier, accelerating from a 4.7% year-over-year increase in October. The eurozone composite purchasing managers index rose slightly to 50.6 in December from 50.3 in the prior month, thanks to the service sectors’ resilience.

In U.S. data, the Empire State business conditions index showed subdued conditions for manufacturing in the region. The index inched up 0.6 point to 3.5 in December, the New York Fed said Monday. Economists had expected a reading of 4.0, according to a survey by Econoday.

Later Monday, the market will watch for composite readings on manufacturing and services, composite PMIs, due at 9:45 a.m., followed by a report at 10 a.m., from the National Association of Home Builders on housing-market conditions.

In the afternoon, the Treasury Department will release its closely watched Treasury International Capital Report at 4 p.m., a snapshot of international holdings and appetite for U.S. debt.

What did market participants’ say?

“The trade tensions should ease from here onwards. Whilst it is not guaranteed that the ‘phase 1 ’ deal will be endorsed by the Chinese side, too, it looks very likely that an agreement will be found and that there is no further escalation at this stage,” said Peter Schaffrik, a global macro strategist at RBC Capital Markets, in a note.

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