By Sam Goldfarb
U.S. government-bond yields continued their sharp recent ascent Tuesday following signs of progress in U.S.-China trade talks and strong U.S. service-sector data.
The yield on the benchmark 10-year U.S. Treasury note settled at 1.865%, according to Tradeweb, compared with 1.787% Monday.
Yields, which rise when bond prices fall, climbed overnight along with global stocks following reports that U.S. and Chinese officials are considering rolling back some tariffs as part of a partial trade deal.
They then extended gains after the Institute for Supply Management said its nonmanufacturing index rose to 54.7 in October from 52.6 the previous month. That further eased worries among investors that a recent slowdown in industrial activity might spread to other sectors.
The 10-year yield fell as low as 1.456% in early September, not far above its all-time low. Since then, however, investors have shifted money to riskier assets as they became more optimistic about the economic outlook.
Along with decent economic data and trade developments, some investors have been heartened recently by the Federal Reserve's shift to a more accommodative monetary policy, reflected in three interest-rate cuts since late July.
In a report dated Nov. 1, analysts at JPMorgan Chase & Co. said the 10-year yield could rise roughly 1 percentage point if markets follow the path established in the mid-1990s, when the Fed similarly cut interest rates in the midst of an economic expansion.
One factor that could constrain yields is the caution being shown by noninstitutional investors. So far this year, investors have poured money into global bond funds while pulling cash out of equity funds, the opposite of what took place after the Fed cut rates in early 1996, the analysts noted
"For the 1996 experience to be repeated into 2020 we need to see a reversal of this year's retail fund flow pattern," the analysts wrote.
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