By Sunny Oh
10-year Treasury note briefly touches lowest yield since Aug. 31
Treasury prices on Thursday rose, pushing yields lower, as a resurgence in tensions between the U.S. and China prompted investors to leave stocks for the perceived safety of haven assets including U.S. government debt.
Amid the flight from risk assets, traders also handled a raft of data pointing to continued growth even as some talk up the prospect of a slowdown in 2019. Bond and stock markets were closed on Wednesday to mark a day of mourning for George H.W. Bush, who died at 94. As a result, a number of economic reports were postponed to Thursday.
The 10-year Treasury note yield fell 4.9 basis points to 2.872%, its lowest since Aug. 31. The 2-year note yield slipped a more marked 5.5 basis points to 2.756%, its lowest since Sep. 12, after briefly slipping its 100-day moving average at 2.747%. The 30-year bond yield fell 4 basis points to 3.134%, its lowest since Sep. 14. Bond prices move in the opposite direction of yields.
The spread between the 2-year and the 10-year note, a popular gauge of the curve's steepness, stood at 12 basis points, or 0.12 percentage point. If the short-dated maturity pushes above its long-term peer, inverting the curve, analysts say a recession is likely to occur within a year or two.
Stocks extended their torrid week of trading after Canadian authorities detained the chief financial officer of Huawei Technologies Meng Wanzhou, who may face extradition to the U.S. Her arrest could cast further doubt on the U.S.-China trade detente reached over the weekend as Wall Street questions the lack of details from the moratorium on the protracted tariff battle.
The Dow Jones Industrial Average and S&P 500 index were both down-- but pared losses late in the session. In Asia, the Japanese Nikkei fell 1.9%, while the Shanghai Composite ended 1.7% lower.
On the data front, Automatic Data Processing, Inc. reported private-sector payrolls fell to 179,000 in November from 225,000 the previous month. ADP's numbers may give an indication of the more important nonfarm payrolls numbers on Friday, though the once-close relationship between the two data releases has frayed.
Weekly jobless claims fell to 231,000 for the seven days ending in Dec. 1, while productivity grew by 2.3% in the third-quarter. And the Institute of Supply Management reported its nonmanufacturing index for November came in at 60.7%, suggesting the U.S. service sector continued to expand. Any reading above 50% indicates improving economic conditions.
Despite the robust data, the inversion of the yield curve on the shorter-end of the curve and weakness in stocks have investors concerned about an economic downturn. But economists say, for the most part, growth will continue as job creation picks up, with the unemployment rate at a multidecade lows of 3.7%.
"The yield curve is one of many [recession indicators]. We don't see a recession in the next 12 months," John Lovito, co-chief investment officer of global fixed income for American Century Investments, told MarketWatch. He added the low unemployment rate and healthy job gains suggest mounting fears over the U.S. economy may be overblown.
But some senior Fed officials have retreated from their calls for the central bank to press on with its steady rate increases next year. Dallas Fed President Robert Kaplan , a nonvoting member of the Fed's rate-setting group, urged patience on the central bank's plans to normalize interest rates.