Treasurys prices rose, pushing yields lower on Tuesday as a lackluster round of economic reports bolstered demand for government debt.
The yield on the benchmark 10-year Treasury note
fell 3.9 basis points to 2.253%, the lowest since July 21, while the yield on the 2-year note
ticked 0.8 basis point lower to 1.343%. The yield on the 30-year Treasury bond
known as the long bond, slipped 4.5 basis points to 2.854%. Yields and debt prices move in opposite directions.
Longer-dated Treasurys drew bidders after the Institute for Supply Management said that its index of U.S. manufacturing activity fell to 56.3 in July from 57.8 in June, while the Federal Reserve’s preferred measure of inflation, the price index for personal-consumption expenditures, slipped in June on an annual basis to 1.4% from 1.5% in May.
Economists polled by MarketWatch expected an ISM reading of 56.2%. Results above 50 indicate expansion and anything over 55 is seen as exceptional.
“I think the economy is just crawling along” said Mary Talbutt, a fixed-income portfolio manager at The Stanley-Laman Group.
Weak inflation can help support buying in Treasurys, while rising inflation can chip away at a bond’s value, particularly long-dated bonds. The lackluster, albeit healthy, data may also support wagers that the Fed will be reluctant to lift benchmark interest rates further in 2017.
“Investors are basically sitting back and saying ‘bond yields are relatively cheap right here, given that [economic] growth is closer to 2%,’” said Tom di Galoma, managing director at Seaport Global. “And inflation, at this point, just doesn’t seem to be an issue,” he said.
Sales reports from U.S. auto makers also came out weaker in July.
Treasury yields edged lower even as the Dow Jones Industrial Average
flirted with a milestone at 22,000, and the S&P 500 index
and the Nasdaq Composite Index
were within range of their own all-time highs. Perceived as haven assets, government paper tends to be sold when stocks, viewed as risk assets, are being scooped up.
However, di Galoma theorized that some equity investors may be hedging their bets as U.S. stock benchmarks reach valuations widely viewed as rich.
“I just think that we are getting to the point that people are getting a little bit more defensive, especially on the equity markets,” he said.
Check out: MarketWatch’s economic calendar
See: Ignoring Washington chaos, companies likely kept up strong hiring in July
Meanwhile, former Fed boss Alan Greenspan warned of a bubble inflating in the bond market, during a recent interview in Bloomberg News. “We are experiencing a bubble, not in stock prices but in bond prices. This is not discounted in the marketplace,” Greenspan said.
His comments come after Fed Vice Chairman Stanley Fischer on Monday tried to explain that global interest rates appear stuck at historically low levels even as the U.S. central bank is tightening monetary policy.
To be sure, this isn’t the first time Greenspan has sounded cautious on bonds. He also did so back in 2015, when 10-year yields were at 2.217%.
Looking ahead, the July jobs report due Friday is expected to show the U.S. economy added 180,000 new jobs in July after nonfarm payrolls rose by 222,000 in June. The unemployment rate is expected to tick down to 4.3% from 4.4% while average hourly earnings are expected to show a 0.3% rise.
Treasury traders, meanwhile, paid little heed to turmoil in Washington, D.C., including the departure Monday of Anthony Scaramucci as communications director after a tumultuous 10-day tenure.
”If U.S. 10-year notes are the heart of financial markets, then they aren’t beating very fast,” wrote analysts at Société Générale. “July’s range was a paltry 15 [basis points] and at 2.30% we’re smack in the middle of it as August starts.”
In European bonds, the yield on the 10-year German bond
known as the bund, was down about 6 basis points at 0.49%, also declining as European stocks
including the German DAX
ended firmly higher.