Treasury yields rise after upbeat manufacturing report

Treasurys yields rose on Monday after better-than-expected manufacturing data and as investors wrestled with the risk of global trade clashes.

The moves were muted, however, as trading volumes this week are expected to be tepid ahead of the July Fourth holiday, when bond markets will be closed and trading on Tuesday will end at 2 p.m. Eastern.

What are yields doing?

The yield on the 10-year Treasury note  advanced 2 basis point to 2.867%, while the 2-year yield edged up 0.2 basis point to 2.2.55%. The yield on the 30-year Treasury bond  was nearly unchanged at 2.991%.

Yields and bond prices move in opposite directions.

What’s driving the market

Canada’s retaliatory tariffs in response to U.S. duties on metals took effect Sunday, in a sign that rhetoric is beginning to turn into action.

Meanwhile, the Trump administration reportedly drafted a bill that would declare America’s abandonment of World Trade Organization rules, giving Trump a license to raise tariffs at will, without congressional consent—a move that could further ratchet up trade conflicts.

Against that backdrop, domestic data were mostly upbeat. The Institute for Supply Management said its manufacturing index rose to 60.2% last month from 58.7% in May. That matches the second highest level of the current economic expansion that began in mid-2009.

In addition, construction expenditures rose by 0.4% in May from in April. The Econoday consensus was for a 0.6% increase in May.

Even though spending data came in below expectations, he trend has been solidly up, representing a healthy trend for the U.S. economy.

To be sure, tariff battles are beginning to rear up, with American manufacturers acknowledging trouble getting supplies delivered on time owing to recent Trump administration tariffs as well as transportation bottlenecks.

What do analysts say?

“Generally speaking, volumes will be low and positioning is light over the next two days, but more importantly commitment to the move is lower,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital.

“Which is why choppy price action today and tomorrow is not important, as traders returning from the 4th of July holiday will correct those,” Lyngen said.