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Bond Report: 30-year Treasury yield breaks below 2%

Treasury yields extend their decline on Thursday as the whole U.S. government bond yield curve slipped below 2% level. Read More...

U.S. Treasury yields fell sharply on Thursday as global growth concerns and trade fears stirred demand for government bonds. Remarks by a European Central Bank official also heightened expectations that the ECB would push for aggressive easing measures in September.

What are bonds doing?

The 10-year Treasury note yield TMUBMUSD10Y, -3.52%   fell 5.6 basis points to 1.525%, its lowest since September 2016. The 2-year note yield TMUBMUSD02Y, -4.90%  slipped 7.5 basis points to 1.502%, while the 30-year bond rate TMUBMUSD30Y, -2.13%   tumbled 5.1 basis points to 1.976%, near an all-time low.

The German 10-year government bond yield TMBMKDE-10Y, -9.57%   slipped 5.4 basis points to a negative 0.706%. The 10-year Italian bond yield TMBMKIT-10Y, -11.52%   plunged 19.3 basis points to 1.334%.

See: The 30-year Treasury bond yield plunges to an all-time low

What’s driving Treasurys?

Trade issues continued to swirl around the bond market. China pledged to launch countermeasures if the White House carries out its recent plan to impose 10% tariffs on an additional $300 billion of Chinese imports. But a spokesperson from China’s Ministry of Foreign Affairs later said it hoped the U.S. would meet China halfway on trade issues.

See: China threatens countermeasures if U.S. tariff hikes go ahead

Offsetting these concerns, traders faced a rush of stronger-than-expected U.S. economic data in the morning that raised questions whether the sharp slide in Treasury yields in recent weeks is justified. Retail sales rose 0.7% in July, above analysts’ expectations for an 0.3% increase. Second-quarter productivity also rose by 2.3% in the second-quarter, much better than the consensus forecast of 1.7%.

In other data, industrial production fell 0.2% in July, and weekly jobless claims came in at 220,000 for the seven day period ending in Aug. 10.

Comments from European Central Bank helped spur purchases of European government bonds. Olli Rehn, who sits on the ECB’s rate-setting committee, said the central bank could unroll further stimulus measures in September, suggesting they would be more “impactful” than investors expect.

”When you’re working with financial markets, it’s often better to overshoot than undershoot, and better to have a very strong package of policy measures than to tinker,” said Rehn.

Check out: Forget the yield curve, here’s who will prevent the U.S. from entering a recession

What else is on investors’ radar?

“A solid July retail sales report does nothing to either arrest mounting concerns of a global slowdown amid growing international uncertainties and risks, or undermine the need for the Fed to offer additional accommodation come September. It certainly does, however, support the Fed’s thesis that the latest policy move was a preventative measure and not a defensive move to provide support to a rapidly faltering economy,” wrote Lindsey Piegza, chief economist for Stifel.

What else is on investors’ radar?

The Treasury International Capital Report will offer a snapshot of foreign purchases of U.S. government debt at 4 p.m.

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