Bond Report: Treasury yields slump as coronavirus and European data overshadow jobs report

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U.S. Treasury yields slumped and prices rose Friday, but remained on track for a weekly rise, as the January employment report showed larger job gains than expected.

Analysts attributed bids for to renewed fears around the coronavirus impact on the global economy and fresh signs that Europe’s manufacturing industry remained in the doldrums.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -3.42% tumbled 6.2 basis points to 1.582%, edging below the 1.60% level in early morning trading. The 2-year note rate TMUBMUSD02Y, -3.30% was down 3.6 basis points to 1.411%. The 30-year bond yield TMUBMUSD30Y, -3.28% slipped 6.8 basis points to 2.046%. Bond prices move inversely to yields.

What’s driving Treasurys?

Treasurys rallied as overseas data underlined how weakness in Europe’s manufacturing sectors still lingered. German industrial production fell 3.5% in December, versus a 1.2% increase in November. Similarly, French industrial production dropped 2.8% in December, down from no change in November.

The coronavirus outbreak also lifted appetite for haven investments as more companies reported that the virus outbreak was hitting sales or disrupting their supply chains. The World Health Organization said Thursday it was too early to say that spread of the virus had peaked.

The latest tally shows that there are more than 31,000 confirmed coronavirus cases, and at least 630 deaths due to the illness.

Investors said the combination of those worries edged out a U.S. employment report that painted a portrait of a steadily growing economy but muted inflationary pressures.

The U.S. economy added 225,000 jobs in January, well above analysts’ forecast of 164,000 in January, as the unemployment rate ticked up to 3.6%. Average hourly earnings rose by 0.2%. In other data, wholesale inventories fell by 0.2%.

See: U.S. adds an ‘astounding’ 225,000 jobs in January as hiring speeds up again

On the Federal Reserve front, Fed Vice Chairman for Supervision Randal Quarles said the U.S. central bank could encourage banks to tap the so-called discount window, where they have historically borrowed funds from the Fed in return for collateral during short-term liquidity shortages.

Quarles also said he would prefer a smaller balance sheet, which has ballooned to around $4.15 trillion due to the central bank’s monthly buying of Treasury bills and repurchasing operations.

What did market participants’ say?

“There’s more going on than the jobs report. We’ve had dismal manufacturing numbers coming out of Germany, and then there’s the ongoing coronavirus response with supply chains shutting down or staying on hiatus for a long time. Those factors are probably a bit more important than the jobs number today,” said Kathy Jones, chief fixed-income strategist at the Schwab Center for Financial Research, in an interview with MarketWatch.

“The number came in better than expectations and continues to show a solid, and broadening labor market (the participation rate ticked up), that will be more than enough to support consumer spending,” wrote Sameer Samana, senior global markets strategist at Wells Fargo Investment Institute.

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