U.S. Treasury yields rose on Thursday, following their German peers higher, after a raft of purchasing managers surveys suggested the eurozone economy may have stabilized in the third-quarter, though its manufacturing sector was still contracting.
What are Treasurys doing?
The 10-year Treasury note yield TMUBMUSD10Y, +2.19% rose 1.1 basis point to 1.588%, while the 2-year note rate TMUBMUSD02Y, +1.55% was mostly unchanged at 1.565%. The 30-year bond yield TMUBMUSD30Y, +1.18% was up 2 basis points to 2.072%. Debt prices move in the opposite direction of yields.
What’s driving Treasurys?
The eurozone economy may have started to steady in recent weeks after the flash composite Markit purchasing managers index for the eurozone rose to 51.8 in August, from a previous reading of 51.5. Any number above 50 indicates an increase in economic activity.
The eurozone service sector PMI hit a two month high of 53.4, up from 53.2, and the manufacturing sector PMI recovered to 47.0 from 46.3, continuing to contract but at a slower pace.
With activity still subdued overall, the survey compiler IHS Markit said the composite index points to economic growth of 0.1-0.2%.
The German manufacturing PMI recovered to a two-month high of 43.6 versus from 43.2. The French manufacturing PMI was also at a two-month high of 51.0 versus 49.7.
See: Europeaneconomy sees slight recovery from trade tensions in August, PMI data shows
The German 10-year government bond yield TMBMKDE-10Y, +7.03% rose 3 basis points to negative 0.648%.
The European Central Bank released the minutes from its July policy meeting Thursday when it said it stood ready to carry out further easing measures to bring inflation back to target. The minutes showed officials were worried that the slowdown had been more protracted than thought earlier.
On Wednesday investors also saw the minutes of last month’s Federal Reserve meeting which showed officials saw the need for a meeting by meeting approach, and that they did not want to commit to a “preset course.” Market are for the U.S. central bank to cut rates several times by next year.
Fed Chairman Jerome Powell is set to speak on Friday at the Jackson Hole symposium. Analysts are expecting Powell to confirm a widely anticipated September rate cut.
What did market participants’ say?
“The FOMC minutes demonstrated a lot of division about what to do, and the market, in reading them, has marginally scaled-back its pricing of how far and how fast rates are cut. That said, rates are still going to but cut further,” wrote Kit Juckes, global macro strategist for Société Générale.
On the eurozone PMIs, “The small increase in August PMIs is a small win, but at least it indicates that the eurozone economy is unlikely to have slipped into negative growth halfway through the third quarter. The picture remains more or less unchanged, with slow growth thanks to a sluggish manufacturing sector and service sector strength that keeps the economy growing,” said Bert Colijn, senior economist for the eurozone at ING, in a note.
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