U.S. government bond yields retreat on signs of global economic weakness

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U.S. Treasury yields fell Friday as investors grappled with a raft of disappointing economic data from around the world due to the impact of the COVID-19 pandemic.

What are Treasurys doing?

The 10-year Treasury note yield

fell 1.7 basis points to 1.090% Friday, leading to a weekly 0.7 basis point drop, while the 2-year note rate

was flat at 0.123%, but down 1.4 basis points for the week. The 30-year bond yield

edged 1.5 basis points lower to 1.857%, but still rose 0.5 basis point this week.

What’s driving Treasurys?

Global risk assets were under pressure at the end of the week, propelling Treasury prices and other safe safe-haven investments higher, after economic data from Europe, in particular, pointed to the persistent toll of COVID-19 on businesses and consumers. Bond yields move in the opposite direction of prices.

Policy makers still have their work cut out for them to foster economic recovery, even with the steady deployment of vaccines and deployment of trillions worth of fiscal and monetary stimulus.

The flash eurozone purchasing managers index fell in January to a two-month low of 47.5 — nearly in line with the 47.6 expected — from 49.1 in December. Any number above 50 represents an expansion in activity, while below 50 signals a contraction.

Germany also may lower its estimate of this year’s growth in total economic output to 3%, from 4.4%, according to reporting from Reuters.

U.S. economic data was much rosier. Markit’s purchasing managers indexes for the services sector rose to a two-month high of 57.5 in January from 54.8 in the prior month, while the manufacturing gauge climbed to a record 59.1 from 57.1.

With U.S. housing still a bright spot, existing home sales increased 0.7% in December from November to a seasonally adjusted annualized rate of 6.76 million units.

What did market participants say?

“Risk tone has soured in the final day of week as concerns on COVID-19 restrictions and a softer set of overseas data came through overnight,” said Simon Deeley, a rates strategist at RBC Dominion Securities.

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