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U.S. Treasury yields ticked higher on Tuesday amid continued questions around the spread of the COVID-19 pandemic and whether economic measures to cushion the blow from the disease will prove successful.
A bounceback in a gauge of Chinese industrial activity also suggested the world’s second largest economy was showing signs of recovery.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, -4.61% rose 2.5 basis points to 0.696%, while the 2-year note yield TMUBMUSD02Y, +1.61% was flat at 0.234%. The 30-year bond yield TMUBMUSD30Y, -1.60% climbed 4 basis points to 1.325%. Bond prices move inversely to yields.
What’s driving Treasurys?
Investors remain hopeful about a stabilization of coronavirus cases in the U.S. and Western Europe. Italy reported the smallest increase in confirmed illnesses in two weeks on Monday, stirring hopes that the heavy social curbs put in place were finally bearing fruit. At the same time, it’s not clear if this positive development would represent a lasting trend, analysts said.
Chinese economic activity showed signs of improvement as the second largest economy attempts to return to normalcy after being locked down for several weeks. The manufacturing gauge for the March official purchasing managers survey rose to 52, from a record low of 35.7 in the previous month.
China’s official statistics agency cautioned that the rebound did not indicate that economic activity had returned to pre-outbreak levels, but rather showed manufacturers were reporting better conditions compared to February.
Tuesday’s docket contains second-tier U.S. data that could nonetheless provide a snapshot of American industrial activity. The Case-Shiller home price index for January is due at 9 a.m. ET, followed by the March Chicago PMI reading. Investors will then digest a snapshot of consumer confidence at 10 a.m.
What did market participants’ say?
“Markets breathed a small sigh of relief this morning after China reported surprisingly strong increases in the manufacturing PMI from 35.7 to 52.0 and non-manufacturing PMI rose from 29.6 to 52.3, but the numbers come with a warning from the stats bureau: do not get carried away, the economy is not back to normal,” said Kenneth Broux, a strategist at Société Générale, in a note.
