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June 1, 2020, 4:25 p.m. EDT

Treasury yields tick higher as investors see beginnings of economic revival in manufacturing data

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By Sunny Oh

Treasury yields inched higher Monday after data spurred hopes that the U.S. was on the path to bouncing back from the coronavirus-driven recession.

What are Treasurys doing?

The 10-year Treasury note yield /zigman2/quotes/211347051/realtime BX:TMUBMUSD10Y 0.00%   rose 1.2 basis points to 0.662%, while the two-year note rate /zigman2/quotes/211347045/realtime BX:TMUBMUSD02Y 0.00%  was virtually unchanged at 0.158%. The 30-year bond yield /zigman2/quotes/211347052/realtime BX:TMUBMUSD30Y 0.00%  climbed 4.8 basis points to 1.455%.

What’s driving Treasurys?

The Institute for Supply Management said its manufacturing index climbed to a reading of 43.1 last month from an 11-year low of 41.5% in April, suggesting the deterioration in U.S. factory activity was slowing down. Readings under 50 indicate that more companies are shrinking instead of expanding.

See : Manufacturers show faint signs of revival in May as economy slowly reopens, ISM finds

But analysts noted May’s reading was propped up by the increased time it took for suppliers to deliver goods to U.S. manufacturers, usually a sign of strong demand. But these delays were more a symptom of disruptions in global supply chains as factories across the world were shuttered to stem the COVID-19 pandemic, they noted.

Investors also paid attention to violent protests over police brutality during the weekend. But the national unrest didn’t make much of a dent on financial markets, as the protests aren’t expected to take a long-term toll on growth, with investors instead eyeing initiatives to reopen the economy and Sino-American tensions.

China told two state-owned agricultural companies to halt purchases of U.S. soy beans under the phase-one trade deal, while also cancelling other U.S. farm goods like pork, news reports said.

The measures follow last Friday’s announcement by President Donald Trump that the U.S. would sanction individual Chinese officials for eroding Hong Kong’s autonomy, but did not offer clarity on what immediate steps he would take to take away the city’s special trade status with the U.S.

Asian equities rose on Monday as Trump’s measures against Beijing were seen not as severe as feared. Hong Kong’s Hang Seng index /zigman2/quotes/210598030/delayed HK:HSI +0.99%   was up 3.4%, while China’s CSI 300 /zigman2/quotes/210598128/delayed XX:000300 +1.93%  gained 2.4%. Japan’s Topix benchmark /zigman2/quotes/210598092/delayed JP:180460 +0.62%   rose by a more modest 0.3%.

As for the U.S., the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.45%   and Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA +0.36%   both ended 0.4% higher, weighing on demand for government paper.

What did market participants say?

“A return to pre-COVID levels of manufacturing output will take much longer, and will be measured in quarters, not months,” said Thomas Simons, senior money market economist at Jefferies.

/zigman2/quotes/211347051/realtime
add Add to watchlist BX:TMUBMUSD10Y
BX : Tullett Prebon
0.67
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Volume: 0.00
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/zigman2/quotes/211347045/realtime
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BX : Tullett Prebon
0.16
0.00 0.00%
Volume: 0.00
July 3, 2020 2:02p
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/zigman2/quotes/211347052/realtime
add Add to watchlist BX:TMUBMUSD30Y
BX : Tullett Prebon
1.43
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Volume: 0.00
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HK : Hong Kong Exchange
25,373.12
+248.93 +0.99%
Volume: 2.32M
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XX : China Securities Index
4,419.60
+83.75 +1.93%
Volume: 29.05B
July 3, 2020 3:00p
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JP : Tokyo Exchange (TOPIX)
1,552.33
+9.57 +0.62%
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US : S&P US
3,130.01
+14.15 +0.45%
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US : Dow Jones Global
25,827.36
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Sunny Oh is a MarketWatch fixed-income reporter based in New York.

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