Bond Report: Treasury yields retreat as China data, Afghanistan fall sour market sentiment

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Treasury prices rose early Monday, pulling down yields, as a round of weaker-than-expected data out of China, and headlines around the Taliban’s seizure of power in Afghanistan, soured investor appetite for riskier assets.

What are yields doing?
  • The yield on the 10-year Treasury note
    TMUBMUSD10Y,
    1.271%

    fell to 1.272% from 1.297% at 3 p.m. Eastern on Friday. Yields and debt prices move in opposite directions.

  • The 2-year note yield
    TMUBMUSD02Y,
    0.205%

    declined to 0.201% from 0.215% Friday afternoon.

  • The yield on the 30-year Treasury bond
    TMUBMUSD30Y,
    1.931%

    was at 1.931%, compared with 1.948% late Friday.

What’s driving yields?

China data appeared to be setting the tone across global financial markets early Monday. July data showed retail sales and industrial production disappointed, along with a January-to-July measure of fixed-asset investment.

The data comes on the heels of a Friday reading of the University of Michigan’s preliminary August reading on consumer confidence, which unexpectedly dropped to its lowest since December 2011.

Meanwhile, The Wall Street Journal reported that Federal Reserve officials were near agreement to start scaling back easy money policies in about three months if the economic recovery continues, with some pushing to end the central bank’s asset-buying program by the middle of next year. A string of strong employment reports are strengthening the argument for the Fed to announce its intentions to start tapering at its next meeting on Sept. 21-22, the report said.

Analysts said headlines around the weekend collapse of the Afghanistan government as Taliban forces took over Kabul may also have been a factor souring overall market sentiment, providing some support for safe-haven assets like core government bonds.

What are analysts saying?

“Geopolitics (Taliban taking control of the Afghan capital Kabul) and slowing Chinese growth momentum at the start of Q3) dampen the general risk mood,” wrote analysts at KBC Bank in Brussels, in a note.

China’s retail sales, industrial production and other data all disappointed in July, they noted. “The delta variant outbreak is the main culprit, especially for the hit on consumption.”

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