Treasuries Show Significant Move To The Downside

After ending the previous session nearly unchanged, treasuries showed a significant move to the downside during trading on Tuesday.

Bond prices fell sharply in morning trading and remained firmly negative throughout the afternoon. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, jumped by 9 basis points to 0.934 percent

The weakness among treasuries came as stocks around the world saw considerable strength following the release of upbeat Chinese manufacturing data.

China’s manufacturing sector logged its strongest growth in a decade in November to indicate a sustained recovery from the Covid-19 outbreak, survey data from IHS Markit showed.

Continued optimism about a potential coronavirus vaccine also reduced the appeal of bonds, with Pfizer (PFE) and BioNTech (BNTX) applying to the European Medicines Agency for conditional marketing authorization of their vaccine.

Meanwhile, traders largely shrugged off a report from the Institute for Supply Management showing a slowdown in the pace of growth in U.S. manufacturing activity.

The ISM said its manufacturing PMI dropped to 57.5 in November from 59.3 in October, with a reading above 50 indicating growth in the manufacturing sector. Economists had expected the index to dip to 58.0.

“Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories,” said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.

“But absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers are causing strains that will likely limit future manufacturing growth potential,” he added. “Panel sentiment, however, is optimistic.”

A separate report from the Commerce Department showed a bigger than expected increase in construction spending in the month of October.

In testimony before the Senate Banking Committee, Federal Reserve Chair Jerome Powell called the economic outlook “extraordinarily uncertain” and noted it will depend, in large part, on the success of efforts to keep the coronavirus in check.

“The rise in new COVID-19 cases, both here and abroad, is concerning and could prove challenging for the next few months,” Powell said. “A full economic recovery is unlikely until people are confident that it is safe to reengage in a broad range of activities.”

“Recent news on the vaccine front is very positive for the medium term,” he added. “For now, significant challenges and uncertainties remain, including timing, production and distribution, and efficacy across different groups.”

Trading on Wednesday may be impacted by reaction to payroll processor ADP’s report on private sector employment in the month of November.

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