Bond Report: 10-year Treasury yield nears 21-month low after soft China data

Treasury prices rose on Friday, pushing yields down close to multimonth lows, after Chinese industrial and investment data showed signs that the second largest economy in the world was under pressure.

What’s did Treasurys do?

The 2-year note yield TMUBMUSD02Y, -1.61%  , sensitive to shifting expectations for interest-rate policy, fell 3.2 basis points to 1.802%, its lowest since Dec. 2017. The 10-year Treasury note yield TMUBMUSD10Y, -1.45%   fell 3.3 basis points to 2.063%, near its lowest since Sep. 2017, while the 30-year bond yield TMUBMUSD30Y, -0.83%   was down 3.1 basis points to 2.577%. Debt prices move in the opposite direction of yields.

The German 10-year government bond TMBMKDE-10Y, -9.16%   yield fell 2.6 basis points to negative 0.27%.

What’s driving Treasurys?

Bond rates tumbled after Chinese industrial output rose 5% in May, falling short of the 5.5% forecast. Meanwhile, fixed-asset investment outside Chinese rural households climbed 5.6% in the January-May period from a year earlier, lower than the 6.1% increase recorded in the January-April period.

China’s CSI 300 index booked a loss of 0.8%. U.S. equities were set to fall at the opening bell, with futures for the S&P 500 ESM19, -0.31%   and the Dow YMM19, -0.18%   trading lower.

Investors are also awaiting some first-tier U.S. data. Retail sales for May will come out at 8:30 a.m. Eastern, providing some evidence of whether consumer spending is still providing the economy with momentum. The May reading for industrial production will be released at 9:15 a.m., followed by June’s consumer sentiment survey at 10 a.m.

What did market participants’ say?

“All eyes will be on this morning’s retail sales report. We’d like to believe the fundamentals need to change in order to reprice to an even lower rates plateau; however, the bigger drivers have been trade and geopolitical in nature, leaving us far less convinced the sales data will offer the ‘ah ha’ moment for pricing in deeper Fed cuts,” wrote Ian Lyngen, head of U.S. rates strategy for BMO Capital Markets.

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