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U.S. Treasurys Send Warning About Slowing Growth

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08/22/2019 | 04:07pm EDT

By Daniel Kruger

U.S. government bonds sent a fresh warning about the economy Thursday after a report showed that manufacturing activity slowed this month to the lowest in almost 10 years.

The yield on the benchmark 10-year Treasury note rose for a second consecutive trading session, settling at 1.613%, compared with 1.577% Wednesday. The yield on the 10-year note briefly fell below the yield on the two-year note, which ended at 1.606%.

Yields, which fall when bond prices increase, slid after IHS Markit said Thursday that business activity in the private sector declined this month in both the service and manufacturing sectors. The manufacturing index fell to 49.9 from 50.4, while the measure of services activity declined to 50.9 from 52.6 last month.

That data led the yield on the 10-year note to fall below the yield on the two-year note.

The phenomenon of longer-term yields falling below shorter-term ones is known as an inverted yield curve. Investors and economists pay close attention to the difference between the two yields because longer-term rates have fallen below shorter-term ones before the past seven economic recessions.

The gap between yields on Treasurys maturing in three months and 10 years, also closely watched, has been inverted for most of the past three months.

"If there's a single indicator you could use to predict a recession it would be the yield curve," said Priya Misra, head of interest-rate strategy at TD Securities. "It's a global growth slowdown we're facing, and over time it will spill into the U.S."

Investors are looking ahead to Friday when Federal Reserve Chairman Jerome Powell addresses the Kansas City Fed's annual conference in Jackson Hole, Wyo., for clues about what plans policy makers may deploy to help sustain the current expansion.

Minutes from the Fed's July meeting released Wednesday show that central bankers have been divided about what approach to take to maintain growth as the U.S. economy decelerates and signs of stress around the world proliferate.

Two officials dissented from the July decision to reduce rates, Kansas City Fed President Esther George and Boston Fed President Eric Rosengren. Ms. George and Philadelphia Fed President Patrick Harker each said Thursday that the central bank doesn't need to cut rates further after reducing them in July.

The WSJ Dollar Index, which measures the currency against a basket of 16 others, declined by less than 0.1% to a recent 91.28.

Write to Daniel Kruger at Daniel.Kruger@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
EURO / US DOLLAR (EUR/USD) -0.27% 1.10124 Delayed Quote.-3.81%
IHS MARKIT LTD -0.61% 67.33 Delayed Quote.41.23%
US DOLLAR INDEX -0.29% 98.27 End-of-day quote.1.64%
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