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Sept. 5, 2019, 4:00 p.m. EDT

2-year Treasury yield stages biggest one-day jump since February 2015

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By Sunny Oh

Treasury yields rose on Thursday after the U.S. and China agreed to meet in early October to renew trade talks, easing investors’ appetite for haven assets like government paper.

Improving data on the jobs market and the services sector also helped market participants shake off fears that trade uncertainty would lead the U.S. to an imminent recession.

What are Treasurys doing?

The 2-year note rate /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y +2.62% surged 10.8 basis points to 1.544%, marking its biggest daily increase since February 2015.

The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y -5.15% climbed 11.3 basis points to 1.569%, marking its biggest one-day rise since November 2016. The 30-year bond yield /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y -2.75% rose 10.8 basis points to 2.060%, its biggest daily rise since October 2018. Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

The Chinese Commerce Ministry said that Vice Premier Liu He had talked to Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer over the phone. Both sides agreed to meet in early October in Washington to restart trade talks that had stalled since May.

Investors hope that a clear timetable toward further negotiations could prevent the implementation of additional tariffs. Beijing and Washington have fired tit-for-tat retaliatory levies on each other in August, raising concerns that trade uncertainty will last well into next year.

The constructive trade developments helped to spur inflows into risk assets as investors sold bonds. The S&P 500 /zigman2/quotes/210599714/realtime SPX +0.48% and the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.07% were up more than 1% on Thursday, putting the key stock-market benchmarks on course for weekly gains.

Read : Asian markets gain as U.S. and China agree to new trade talks

In economic data, Automatic Data Processing Inc. reported private sector employers had added 195,000 jobs in August , up from 142,000 in the previous month. This comes ahead of the more widely monitored nonfarm employment numbers on Friday.

The resilience of the U.S. economy was also underlined by the Institute for Supply Management’s nonmanufacturing activity gauge. The services index jumped to 56.4% in August, up from 53.7% in July. Economists polled by MarketWatch had forecast a reading of 54.2%. Any number above 50% indicates an expansion in activity.

The strong data undercut expectations for the Federal Reserve to go on a full-blown easing cycle. Traders on the fed fund futures market estimated the chance of the U.S. central bank to stand pat at its September meeting rose to 4% from nothing a day ago.

What did market participants’ say?

“The Treasury market is trading lower ... as several factors have led investors back to risk, at least for the time being. Front and center to this is the fact that while the U.S. and China have agreed to meet, it won’t be until October, and there are a bunch of trading days between now and then. The other significant factor is that the U.S. economy continues to show strength, which is driving the ‘recessionists’ crazy,” wrote Kevin Giddis, head of fixed income at Raymond James.

add Add to watchlist BX:TMUBMUSD02Y
BX : Tullett Prebon
+0.0041 +2.62%
Volume: 0.00
May 29, 2020 4:59p
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
-0.04 -5.15%
Volume: 0.00
May 29, 2020 5:00p
add Add to watchlist BX:TMUBMUSD30Y
BX : Tullett Prebon
-0.04 -2.75%
Volume: 0.00
May 29, 2020 5:00p
+14.58 +0.48%
Volume: 4.38B
May 29, 2020 5:14p
US : Dow Jones Global
-17.53 -0.07%
Volume: 545.14M
May 29, 2020 5:14p

Sunny Oh is a MarketWatch fixed-income reporter based in New York.

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