Bond Report: Treasury yields follow stocks higher on hopes for coronavirus drug

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U.S. Treasury yields edged up on Friday, recovering some of this week’s decline, after global stocks rallied on hopes that an effective treatment to the COVID-19 disease was coming into view and after President Donald Trump outlined steps for reopening the U.S. economy late Thursday.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 0.649% rose 3.1 basis points to 0.642%, while the 2-year note TMUBMUSD02Y, 0.201% was largely flat at 0.208%. The 30-year bond yield TMUBMUSD30Y, 1.260% climbed 4 basis points to 1.253%.

What’s driving Treasurys?

Traders took encouragement from reports that patients in one of Gilead’s trials for its Remdesivir drug were responding to treatment, though analysts were more cautious on the prospects for the drug. Still, hopes that medical companies were making progress toward potential treatments for the COVID-19 disease has helped to buoy risk sentiment.

Late Thursday also the White House unveiled new guidelines for states and localities on lifting coronavirus-related restrictions on citizens and businesses, as President Trump looks to bring the nation’s focus toward reigniting an economy battered by efforts to stop the spread of COVID-19.

The S&P 500 SPX, +1.58% and Dow Jones Industrial Average DJIA, +1.78% were on path to book gains for the week, dampening demand for government paper.

Meanwhile Chinese economic data illustrated the damage from a sudden stop to the second largest economy in the world. China’s gross domestic product slumped by 6.8% in the first-quarter, while retail sales fell 19% in the first three months of the year.

See: Slow Chinese economy casts doubt on speed of U.S. recovery, analysts say

Nevertheless, investors say China could offer a road map to how other economies can remove lock downs and restart growth.

The U.S. also some economic data of its own, with the Conference Board reporting a record 6.7% drop of its leading economic indicator index in March.

What did market participants say?

“This week has offered a degree of hope that market functioning is returning to normal. The same cannot be said of economic expectations, still firmly on a downward path in our opinion,” said rates analysts at ING, in a note.

“I still think Treasurys are going to be a hedge. There’s still a growing need of safety assets, and we aren’t certainly on the woods yet,” said Tom di Galoma, managing director of Treasurys trading at Seaport Global Securities, in an interview.

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