By Sunny Oh
10-year, 30-year Treasury note yields haven't been this low since last January
Treasury yields accelerated their decline Thursday after a weaker-than-expected number from the ISM's manufacturing gauge raised questions about the U.S. economy's strength.
The 10-year Treasury note yield plunged 10.2 basis points to 2.557%, its lowest since Jan. 16, 2018, to mark its biggest one-day decline since May. The two-year note yield fell 11.1 basis points to 2.391%, its lowest since May 29, marking its biggest daily fall also since May.
The 30-year bond yield fell 7.9 basis points to 2.903%, its lowest since Jan. 25, 2018. Bond prices move in the opposite direction of yields.
The Institute for Supply Management reported its manufacturing index for December had fallen to 54.1% from 59.3% , below the forecast of 57.0% from economists polled by MarketWatch. The weaker-than-expected ISM data follows declines in the Federal Reserve's regional gauges of industrial activity and a contraction in China's purchasing manager's index for the manufacturing sector. A reading of 50% or better indicates improving conditions.
"We have been looking for a gradual slowdown in manufacturing activity amid headwinds from trade uncertainty, reduced fiscal stimulus, and weaker global activity, but the risks of a sharper deceleration have increased," said Jake McRobie, U.S. economist at Oxford Economics, in a note.
The tepid reading in the ISM gauge gave extra impetus to the bond market rally and sent stocks slumping. But investors cautioned that factory activity was expanding at a rapid pace in 2018 that was ultimately difficult to sustain.
"Any kind of weakness in ISM tells you the economy is slowing in a lot of ways, however, we came off very high numbers," Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities, told MarketWatch.
Investors did enjoy a dose of positive data, with the labor market showing few signs of letting up. The ADP employment report for December showed the U.S economy added 271,000 private-sector jobs , a leap from the 157,000 jobs added in November. Jobless claims for the week ending in Dec. 29 rose to 231,000 from 221,000.
Anxieties around China's economic slowdown remained on investors' agenda after Apple Inc.(AAPL) said Wednesday it expected revenues to fall below forecasts, citing slower-than-expected growth in China. Stocks fell sharply, with the Nasdaq Composite Index snapping its five-session streak of gains. The dour mood spurred inflows into haven assets such as government paper and the Japanese yen .
Opinion: Apple lives up to Wall Street's fears with massive revenue shortfall
Meanwhile, Dallas Fed President Robert Kaplan said Thursday morning that the selloff in financial markets has caused him to support a pause in further interest-rate hikes until the uncertainties settle. In an interview with Bloomberg News, Kaplan said the Fed should remain on the sidelines at least for the "first couple of quarters" of the year.
Adding to the jitters in risk assets, the government shutdown shows no signs of coming to an end, postponing the releases of economic data. However, the Bureau of Labor Statistic will still issue employment reports.