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Bond Report: 10- and 30-year Treasury yields move higher after Empire State data

Treasury yields ended mostly higher on Tuesday as traders returned from a three-day holiday weekend weighing a batch of somewhat more upbeat global economic data and a disappointing reading on a key U.S. factory index.

What’s happening

The yield on the 2-year Treasury note
TMUBMUSD02Y,
4.215%

fell 4.8 basis points to 4.19% at 3 p.m. Eastern. Yields and debt prices move opposite each other.

The yield on the 10-year Treasury note
TMUBMUSD10Y,
3.545%

added 2.4 basis points to 3.534%.

The yield on the 30-year Treasury bond
TMUBMUSD30Y,
3.663%

gained 2.6 basis points to 3.646%.

What’s driving markets

A batch of better-than-expected economic data from across the globe Tuesday helped push U.S. bond yields higher as investors returned to their screens following the Martin Luther King Jr. Day holiday.

First up was news that China’s economy grew 3% last year. Though this was the second weakest pace of expansion since the 1970s, it was nevertheless better than analyst forecasts and raised hopes the world’s second biggest economy was more resilient than expected as it battled COVID.

Next, data out of the U.K, showed the labor market remained in relatively robust health, while a survey of German business sentiment on the economy jumped from minus 23.3 in December to 19.9 in January.

The building optimism about the European economy was reflected in comments from European Central Bank governing council member Mario Centeno, who told a panel in Davos that: “The economy has been surprising us quarter after quarter…The fourth quarter in Europe will be most likely still positive. Maybe we’ll be surprised also in the first half of the year.”

U.S. Treasury yields tracked their European peers higher.

Meanwhile, U.S. data disappointed. The New York Fed’s Empire State business conditions index, a gauge of manufacturing activity in the state, tumbled 21.7 points to negative 32.9 in January, the regional Fed bank said Tuesday. This is the lowest level since the worst of the pandemic in May 2020 and among the lowest levels in the survey’s history, the regional Fed bank said.

Short-term yields moved lower, while longer-dated yields rose.

The Bank of Japan will deliver its monetary policy decision at 9:30 p.m. Eastern.

See: Why U.S. investors can’t afford to ignore Wednesday’s BOJ meeting

What are analysts saying

“Investors are eager to begin the cyclical bull steepening trend and were content to point to this morning’s release of the Empire Manufacturing survey — a significant disappointment at just -32.9 for January versus the consensus of -8.6,” said Ian Lyngen and Benjamin Jeffery, strategists at BMO Capital Markets, in a note.

“To be fair, it is a notoriously volatile series and the winter storms that hit the region over the holidays may also be distorting the gauge of business, in the manufacturing sector. That said, the Empire struck out with the lowest print since May 2020 — stoking concerns that the looming slowdown will be of greater significance than the soft-landing optimism implies.”

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