Treasury yields slip ahead of holiday break as trade worries linger

Treasury prices on Tuesday rose, pushing yields lower in a holiday-abbreviated session, as trade-war jitters underpinned buying in government paper.

The bond market closed at 2 p. m. Eastern Time and will remain shuttered in observance of the Fourth of July holiday on Wednesday.

The yield on the benchmark 10-year Treasury note fell 3.5 basis points to 2.833%, while the 2-year yield  picked up 2.2 basis points to 2.530%. The yield on the 30-year Treasury bond fell 3.2 basis points to 2.959%.

Yields fall as bond prices rise.

Trade uncertainty has been a major contributor to sentiment, with President Donald Trump’s administration set to enact tariffs on up to $50 billion on Chinese products scheduled to take effect Friday.

Stronger-than-expected data and anticipation of higher yields ahead had helped to push yields up. On Monday, 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. A reading of at least 50 signifies improving conditions.

On Tuesday, data showed that U.S. factory orders climbed 0.4% in May, in line with expectations.

Upbeat data are likely to compel the Federal Reserve to lift interest rates twice more in 2018, which can weigh on the appetite for Treasurys already issued. The Fed has been aiming to normalize monetary policy in an effort to return it to levels seen before the 2007-09 financial crisis forced central banks across the globe to put in place a raft of measures to ease market distress.

In recent weeks, tensions around trade, however, have kept rates lower because investors have turned to the perceived safety of U.S. government bonds amid the tit-for-tat tariff spat between Washington and trading partners in China, North America and Europe. Demand for these markets has driven up prices, helping to put a lid on yields.

Meanwhile, anxieties centered on European politics eased after German Chancellor Angela Merkel’s fragile coalition government averted a threat centered on immigration policy that threatened to spark a new election for leadership in the European Union’s largest economy.

U.S. stock benchmarks, notably the Dow Jones Industrial Average and the S&P 500 index finished the session lower, reversing early gains and helping stoke demand for Treasurys during the shortened session. Stock trading ended Tuesday at 1 p.m.

Looking ahead, bond investors will face a packed stretch of data that will include minutes on Thursday from the Fed’s most recent meeting and reports on employment, culminating in Friday’s key nonfarm-payrolls report for June.

“We do have a lot of data over the next couple of work days that could push [yields] higher,” said Tom di Galoma, managing director rates at Seaport Global. He added the long-bond yield hit a key level at around 2.97%, representing its 200-day moving average and he doesn’t expect the rate to fall much lower than that. Investors tend to follow moving averages to determine bullish and bearish momentum in an asset.