BOND REPORT: Treasury Yields Rise After 5-day Decline
Treasury yields rose for the first time in six sessions on Monday, as traders returned from a long holiday weekend to the first trading day of 2018.
Treasury prices extended a drop, pushing up yields, after the final reading of the Markit U.S. manufacturing purchasing managers index came in at 55.1 versus a reading of 53.9 in November and a preliminary December reading of 55.0.
Bond trading was closed on Monday for the New Year's Day holiday.
What are Treasurys doing?
The 10-year Treasury yield rose 5.2 basis points to 2.461% from 2.409% on Friday. The yield is hovering at the same level it was a year ago.
The 30-year bond yield advanced 6.7 basis point to 2.809% from 2.742% on Friday.
Shorter maturities also moved higher, with the 2-year note yield up 3.2 basis points to 1.915% from 1.883% on Friday.
Bond prices move in the opposite direction of yields.
What's driving the market?
With the economic calendar light on Tuesday, Treasury prices have taken their cue from U.S. equity markets, which began 2018 on a high note. The S&P 500 rose 0.8% to notch fresh record high at 2,695.79 on Tuesday.
Yields got a slight boost from better-than-expected manufacturing data. Traders will turn their focus on ISM manufacturing and monthly jobs report later in the week.
The rebound in yields follows five straight sessions of declines, when optimism about tax reforms that sent the 10-year yield to as high as 2.5% in late December fizzled out by the end of the last year.
Long-dated Treasury yields, which rose during the second half of the last year, remained below their peaks in March, however, largely due to lack of inflation.
What are market participants saying?
"We maintain that the most exciting story during 2018 will be about the curve and as we approach the March FOMC meeting and odds of a hike firm, we'll be watching for the risk that the curve inverts more quickly than many expect," wrote Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.
"The bullish momentum in the Treasury market that commenced last week should prove to be the primary driver of the market in the days ahead and as such we're content to play for a continued bullish flattening of the curve," Lyngen said.
Which other assets are in focus
European bonds were also mostly higher. The Italian 10-year government bond yield continued to climb, jumping 10.8 basis points to 2.097%.
Italian bond yields rose sharply over the past three weeks as antiestablishment parties such as the 5 Star Movement have amassed broad support, according to opinion polls. The rising popularity of these parties raises the chance of a hung parliament, leading political inertia and delaying of reforms for one of the eurozone's economic laggards.
Meanwhile German 10-year bond was up 3 basis points to 0.464%.
U.K. bond yields rose sharply on Tuesday, with the 10-year gilts up 9 basis points to 1.284%.
(END) Dow Jones Newswires
January 02, 2018 16:20 ET (21:20 GMT)