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Rates on U.S. government debt finished slightly lower on Monday after weak growth data from China raised concerns about a slowing global economy.
What happened
-
The yield on the 2-year Treasury
TMUBMUSD02Y,
4.742%
slipped 1.7 basis points to 4.732% from 4.749% on Friday. The yield is down five of the past seven trading days, based on 3 p.m. Eastern time figures from Dow Jones Market Data. Yields move in the opposite direction to prices. -
The yield on the 10-year Treasury
TMUBMUSD10Y,
3.811%
declined 2.2 basis points to 3.796% from 3.818% as of Friday afternoon. The 10-year yield is down five of the past six trading sessions. -
The yield on the 30-year Treasury
TMUBMUSD30Y,
3.929%
was marginally lower at 3.922% versus 3.923% late Friday.
What drove markets
Yields slipped after softer-than-expected China growth data raised questions about the state of the global economy.
With China’s factory-gate prices already deep in deflationary territory, the prospect of reduced demand means the world’s second-biggest economy may help reduce goods inflation in developed nations, potentially assisting central banks in their battles against consumer-price pressures.
However, China’s data is also raising worries about growth prospects for the U.S., with the eurozone having slipped into a recession earlier this year. In an interview Monday with Bloomberg Television, Treasury Secretary Janet Yellen said she does not expect the U.S. economy to fall into a downturn.
In U.S. economic releases on Monday, the New York Federal Reserve Bank’s business-conditions index, a gauge of manufacturing activity in the state, fell 5.5 points in July, to 1.1.
Markets were pricing in a 97.3% probability that the Fed will raise interest rates by 25 basis points to a range of 5.25%-5.5% on July 26, according to the CME FedWatch Tool. The chance of a similar or bigger move by November was seen at 28.3%.
The central bank is expected to take its fed-funds rate target back down to around 5% or lower next year.
What analysts are saying
“The market is debating whether the U.S. economy will slow — we provide evidence that U.S. activity has already slowed,” said Steve Englander, head of global G-10 FX research and North America macro strategy at Standard Chartered Bank’s New York branch. “Data from the income side are much weaker than standard GDP calculations based on demand … as was the case in the runups to the 1990 and 2008 recessions.”
In his note, Englander continued: “We also look at daily data on withholding taxes and [unemployment-insurance] benefits that point to a weaker labor market than [nonfarm payrolls]. Not a big ‘R’ recession to set your hair on fire, but looks like there is sluggishness in the air. This will drive [the U.S. dollar] and yields further lower.”
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