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Bond Report

Dec. 5, 2019, 4:31 p.m. EST

U.S. government bond yields end mostly flat as market awaits jobs report

Yields slightly higher on 30-year bond

By Mark DeCambre, MarketWatch , Joy Wiltermuth

U.S. Treasury yields ended largely unchanged Thursday as traders awaited a key reading of employment on Friday that could offer further insight on the state of the domestic economy.

Initial jobless claims dropped 10,000 to 203,000 in the seven days ended Nov. 30, the government said Thursday, marking the lowest level read since mid-April, when new claims fell to a 50-year low of 193,000.

But the report largely was overshadowed by coming U.S. Labor Department data on monthly nonfarm-payrolls due on Friday, with economists surveyed by Bloomberg News anticipating growth of 190,000 jobs in November, with the unemployment rate holding at 3.6%.

“Yields are up slightly on the economic data,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, in an interview with MarketWatch. But he also said the market was “grinding sideways” ahead of Friday’s payroll figures.

The yield on the benchmark 10-year Treasury note (XTUP:BX:TMUBMUSD10Y)  rose 1.4 basis points 1.795%, while the two-year Treasury yield (XTUP:BX:TMUBMUSD02Y)  was virtually unchanged at 1.582%. The yield on the 30-year Treasury bond (XTUP:BX:TMUBMUSD30Y) , meanwhile, picked up 1.7 basis points to 2.246%.

Yield gains for U.S. debt on Wednesday represented the largest single-session increases for two-year and 10-year notes since Nov. 7, according to Dow Jones Market Data.

Investors have been attuned to the health of the U.S. economy, amid anemic growth elsewhere around the globe, with Sino-American trade tensions deepening global economic weakness, strategists say.

Strength in the U.S. labor market has given investors some cause for cheer — that contraction hitting elsewhere may not immediately damage employment, one of the pillars of domestic growth.

Brad McMillan, chief investment officer at Commonwealth Financial Network, said that achieving Friday’s expected payroll gains “would be very positive for the economy and the markets through the rest of the year,” in commentary posted Thursday.

Market strategists also have been watching the shifting narrative in the Sino-American trade negotiations as both parties work toward a partial pact to end tariff hostilities.

China’s trade negotiations with the U.S. remain on track, Beijing said Thursday, offering official reassurance after tensions flared up between the world’s two biggest economies. China’s Commerce Ministry spokesman said negotiating teams remain in “close contact.”

“If China and the U.S. strike a phase-one deal, relevant tariffs should be reduced,” Commerce Ministry spokesman Gao Feng said.

But agriculture-related trade could be a sticking point, with President Donald Trump pressing for Beijing to commit to buying $40 billion to $50 billion in farm goods a year within two years, which would be a sharp increase from last year’s $8.6 billion of purchases.

Meanwhile, a Thursday report showed that the nation’s trade deficit dropped almost 8% in October to a 16-month low, largely because of lower imports from China tied to the continuing U.S. trade dispute.

The deficit slid to $47.2 billion from a revised $51.1 billion in the prior month, the government said Thursday. If it persists through December, the smaller gap could give a boost to gross domestic product in the fourth quarter.

On Wednesday, markets appeared to shake off a weaker-than-expected private-sector payrolls report from ADP showing just 67,000 job gains in November, well below the consensus forecast of 156,000 by a survey of economists by Econoday.

“Markets made another U-turn yesterday. Equities rebounded on hopes of a trade deal and USTs were correspondingly hit and failed to receive support from weaker than expected ADP,” wrote analysts at UniCredit in a Thursday research note.

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