Bond Report: Treasury yields retreat ahead of ISM services number

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U.S. Treasury yields are ticking lower early Thursday ahead of an indicator of service sector activity, after a raft of weaker-than-expected data this week put the health of the U.S. economy in the spotlight.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, -1.08%   fell 2 basis points to 1.577%, while the 2-year note rate TMUBMUSD02Y, -0.81%   also was down 2 basis points to 1.464%. The 30-year bond yield TMUBMUSD30Y, -0.79%   edged lower by 2 basis points to 2.068%.

See: The yield curve is steepening, and that’s not good for investors. Here’s why

What’s driving Treasurys?

Investors will eye an update of the health of the service sector amid fears that the impact of the trade war may spill over into other areas of the economy beyond export-dependent manufacturers. The Institute for Supply Management’s non-manufacturing gauge will be published at 10 a.m. Eastern. Economists surveyed by MarketWatch a reading of 55.3% in September. Any number above 50 reflects an expansion in activity.

In other data, U.S. weekly jobless claims, the IHS Markit services sectdor purchasing manager’s index for September and factory orders are due for release in the morning. On Friday the U.S. Labor Department nonfarm employment report will command the attention of investors who will get a chance to size up the labor market’s strength.

See: Another poor U.S. jobs report would add to Wall Street gloom: Here’s what to look for

On Wednesday, the U.S. also announced tariffs on the European Union starting from Oct. 18, following the World Trade Organization’s decision to rule in favor of Washington in a dispute over EU subsidies to the bloc’s aircraft manufacturers.

Meanwhile, Chicago Fed President Charles Evans told Bloomberg TV that he was concerned about the inflation outlook. He said he would go into the Federal Reserve’s two-day meeting ending on Oct. 30 to ask if further easing is warranted.

A number of other Fed officials are set to speak on Thursday, including Fed Gov. and Vice Chairman for Supervision Randal Quarles, Cleveland Fed President Loretta Mester, and Fed No. 2 Richard Clarida.

What did market participants’ say?

“Lights will stay amber if we get a back-to-back disappointment in today’s non-manufacturing ISM,” wrote Kenneth Broux, a strategist at Société Générale.

“A good number could take the sting out of the markets, but investors will be inclined to tread cautiously before the NFP print tomorrow and trade discussions next week between Washington and Beijing,” said Broux.

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