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U.S. Treasury Yields Lifted by Overseas Economic Data

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12/02/2019 | 11:54am EST

By Sam Goldfarb

U.S. government bonds pulled back Monday, reflecting better-than-expected economic data out of China and the eurozone that outweighed a disappointing report on the U.S. manufacturing sector.

In recent trading, the yield on the 10-year U.S. Treasury note was 1.831%, according to Tradeweb, compared with 1.778% Friday.

Yields, which rise when bond prices fall, climbed overnight after new data pointed to improvement in the Chinese manufacturing sector. Manufacturing gauges for Spain and Italy also beat analysts' expectations, while those for Germany and France were revised higher from earlier estimates.

Investors have been paying close attention to manufacturing data due to a recent slowdown in global factory activity, which analysts attribute in part to the continuing U.S.-China trade conflict.

Signs of stability in the sector provided a particularly large boost to government-bond yields in Europe, with the 10-year German yield rising to negative-0.281% from negative-0.352% Friday, according to Tradeweb.

Even so, a weak U.S. manufacturing report helped limit the increase in U.S. yields.

The Institute for Supply Manufacturing's manufacturing index fell to 48.1 in November from 48.3 in October. Readings above 50 indicate activity is expanding across the manufacturing sector, while those below 50 are a sign of contraction. Economists surveyed by The Wall Street Journal had anticipated a reading of 49.4.

Monday's uptick in yields came after a holiday-shortened week defined by light trading volumes. As it stands, the 10-year yield remains below the 1.93% level it reached in early November but above its lows from early September, when it sank to roughly 1.46%.

One factor that could keep yields in a tight range in the coming months is investors' expectations for stable monetary policy from the Federal Reserve.

Federal-funds futures, which investors use to bet on the path of central-bank policy, showed Monday a better-than 50% chance that the Fed keeps short-term interest rates at their current level through the Fed's meeting next July. Many investors, though, do expect another rate cut later in 2020.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

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