Weak U.S. Data Boost Treasurys
October 16 2019 - 1:52PM
Dow Jones News
By Ira Iosebashvili
U.S. government-bond prices rose Wednesday after
worse-than-expected economic data and signs of potential delays in
a trade deal with China.
The yield on the benchmark 10-year Treasury note was recently at
1.753%, according to Tradeweb, down from 1.773% on Tuesday. Yields
fall when bond prices rise.
Retail sales decreased a seasonally adjusted 0.3% in September
from a month earlier, the first monthly decline since February, the
Commerce Department said Wednesday. Economists polled by The Wall
Street Journal had expected an increase.
The release is another concerning economic sign for investors
trying to gauge whether the decadelong U.S. economic expansion is
coming to an end. Data earlier this month showed U.S. factory
activity contracted to a 10-year low.
Investors tend to buy Treasurys when they anticipate a weakening
economy. Many are also piling into U.S. government bonds because
they believe the Federal Reserve is more likely to shore up growth
by once again cutting rates in coming months, a move that would
guide bond yields lower and buoy prices.
Those expectations have helped push the yield on shorter-term
Treasurys below the yield on longer-term ones in recent sessions.
For several months, the yield on three-month Treasurys has exceeded
the benchmark 10-year yield, a phenomenon known as an inverted
yield curve.
Investors and economists monitor the dispersions of Treasury
yields because the curve typically inverts ahead of recessions. The
curve's inversion earlier this year boosted concerns of an economic
slowdown, but its recent reversal doesn't mean the economy is out
of the woods, investors said.
Matt Watson, portfolio manager at James Investment Research,
said that after inverting, the yield curve often returns to its
more typical shape when a recession draws closer.
Mr. Watson said he would probably increase the duration of his
bond portfolio and cut stockholdings should the yield curve
continue to stay in its present shape.
"This is something we are keeping a close eye on," he said. "We
do think we are closer to the end of the economic cycle than the
beginning."
Investors are also closely following the details of the "phase
one" trade deal reached between the U.S. and China last week.
Despite China's pledge to buy more U.S. farm products, questions
remain over how much, the time frame for purchases, and what the
U.S. might have to give in return. The U.S. still plans to impose
new 15% tariffs on $156 billion in consumer goods starting Dec.
15.
Write to Ira Iosebashvili at ira.iosebashvili@wsj.com
(END) Dow Jones Newswires
October 16, 2019 13:37 ET (17:37 GMT)
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