Bond Report: Treasury yields steady as investors await this week’s jobs data

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Treasury yields were little changed early Tuesday, with investors weighing signs of a slowdown in China’s service sector as they await U.S. data on the labor market due on Friday.

What are yields doing?
  • The yield on the 10-year Treasury note

    edged up to 1.286%, compared with 1.284% at 3 p.m. Eastern on Monday. Yields and debt prices move in opposite directions.
  • The 2-year Treasury note yield

    was at 0.203%, unchanged from late Monday.
  • The 30-year Treasury bond yield

    edged up to 1.902% versus 1.899% Monday afternoon.
What’s driving the market?

Yields edged lower Monday, as investors continued to buy Treasurys in the wake of Federal Reserve Chairman Jerome Powell’s virtual address Friday to the Kansas City Fed’s Jackson Hole symposium, in which he signaled support for beginning the process of winding down monthly bond purchases this year but offered no solid timetable. Also, Powell emphasized that the start of the taper process, when it arrives, won’t be meant to signal the timing of interest rate increases.

Read: How Powell’s Jackson Hole remarks have refreshed a rally in both stocks and bonds

Analysts said Powell’s remarks put a premium on coming U.S. economic data, particularly this week’s round of labor figures that culminate Friday with the release of the official August jobs report, Wednesday’s manufacturing index and Friday’s services index from the Institute for Supply Management, or ISM, will also be in focus. Bullish investors will hope for “Goldilocks” type data that shows the economist is improving, but not running so hot as to accelerate a move by the Fed, analysts said.

Meanwhile, China’s official service sector purchasing managers index unexpectedly fell into contractionary territory in August, dragged down by efforts to contain the outbreak of the delta variant of the coronavirus that causes COVID-19. The service sector PMI, which includes construction and service activities, fell to 47.5 in August, down sharply from July’s 53.3, according to the National Bureau of Statistics. A reading of less than 50 indicates a contraction in activity. China’s official manufacturing PMI dropped to 50.1 in August, down from July’s 50.4.

U.S. data on tap for Tuesday include the Case-Shiller home price index for June, due at 9 a.m. Eastern. A Chicago area purchasing managers index reading for August is set for release at 9:45 a.m., while an August consumer confidence reading is scheduled for 10 a.m.

What analysts are saying

“The U.S. 10-year yield probably needs outright positive surprises from the ISMs and the payrolls to get the 1.37% first resistance back on the radar,” wrote analysts at Brussels-based KBC Bank, in a note.

“We saw little in Powell’s speech to dissuade us from the view that November’s Fed meeting will most likely see a tapering announcement, but we suspect that this is a widely shared view and we doubt any significant market response if that proves correct,” said Steve Barrow, head of G-10 strategy at Standard Bank, in a note to clients.

“As we have said many times, the danger for the markets is in the data, not in the Fed per se,” he said. “The Fed will only surprise and potentially cause carnage in the market if the data surprises and, so far, these surprises have been modest and, most often to the lower side of market expectations, not the high side.”

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