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Treasury Yields Bounce Back from Biggest Plunge in Four Months After Fake News Breathes New Life Into Dow

Last Updated September 23, 2020 1:19 PM
Sam Bourgi
Last Updated September 23, 2020 1:19 PM
  • Treasury yields recover following their biggest drop in four months.
  • Dow and broader U.S. stock market rebound.
  • Again, U.S.-China trade hype dominates the spotlight.

Government debt yields rose on Wednesday, bouncing back from their biggest single-day drop in four months after anonymous sources breathed new life into U.S.-China trade hype.

Markets are clutching at straws trying to make sense of a 16-month trade war that has produced nothing of substance. The flood of newly printed money entering the market has created optimal conditions to bid up stocks as the Dow and S&P 500 return to record to record territory.

Treasury Yields Rally

The benchmark 10-year U.S. Treasury yield rose by about 8 basis points to 1.79%, while the rate on the 30-year note increased 7 basis points to 2.24%.

10 year Treasury yield
After falling 14 basis points on Tuesday, the yield on the 10-year Treasury rebounds Wednesday. | Chart: CNBC 

Yields, which move inversely with bond prices, fell to one-month lows on Tuesday. The decline came as investors shifted their assets from stocks to bonds over concerns that U.S.-China trade talks would drag on past the 2020 presidential elections.

Trade Talks Border on Fake News

Chaos and confusion have come to define ongoing trade talks between the United States and China. Less than a day after President Trump shocked the markets with his nonchalant rhetoric, ‘anonymous’ sources told Bloomberg that Washington and Beijing were close to a deal after all.

So close, the sources said, that China isn’t letting the possibility of U.S. sanctions disrupt trade talks. It was only last week that President Trump signed into law new legislation targeting Chinese officials for alleged human rights violations in Hong Kong and Xinjiang. The move angered Beijing and threatened to unravel tepid progress on tariffs.

It was almost two months ago that Trump declared ‘phase one’ trade talks with China had been finalized. The deal was supposed to expedite the resolution of core issues, such as intellectual property and technology transfers, and boost flows of U.S. agricultural goods into China. Not only has a deal not been finalized, China is reportedly seeking a complete roll back of tariffs implemented throughout the 16-month trade war.

Traders Don’t Care

The Dow and broader U.S. stock market rebounded sharply on Wednesday, clawing back some of their December losses and proving once again that a China trade agreement has already been priced into the market. Even though there is no agreement and no avenue for resolving core issues that forced President Trump to confront China in the first place.

The Dow Jones Industrial Average (DJIA) rallied more than 200 points. It would eventually settle on a gain of 147 points, or 0.5% . The broad S&P 500 Index of large-cap stocks gained 0.6% with most sectors finishing in positive territory. The technology-focused Nasdaq Composite Index jumped 0.5%.

Dow Jones Industrial Average
The Dow Jones Industrial Average rallied more than 200 points Wednesday afternoon before paring some of its gains late in the session. | Chart: Yahoo Finance 

U.S. financial markets are getting a boost from the printing press after the Federal Reserve slashed interest rates three times and began a new round of quantitative easing under a different name. As the Fed guarantees liquidity, more dollars are finding their way to the stock market.

U.S. Economy Showing Weakness

The U.S. services sector slowed more than expected last month, while private-sector payrolls grew at a fraction of what analysts had forecast, painting a dim picture of the world’s largest economy.

The Institute for Supply Management’s non-manufacturing purchasing managers’ index (PMI)  weakened to 53.9 in November from 54.7 in October on a scale where 50 separates expansion from contraction.

Combined with ISM’s latest report on manufacturing, PMI data point to GDP growth of less than 1.9%.

In a separate report, payrolls processor ADP said private sector employers added only 67,000 workers last month versus expectations of 140,000. Employment in goods-producing industries declined across the board, echoing concerns of a deepening recession in manufacturing.

Private sector jobs
Private sector employment growth weakens in November. | Chart : ADP

Mark Zandi, chief economist at Moody’s Analytics, issued the following statement :

The job market is losing its shine. Manufacturers, commodity producers, and retailers are shedding jobs. Job openings are declining and if job growth slows any further unemployment will increase.

The Department of Labor will release official nonfarm payrolls numbers on Friday. The creation of 180,000 jobs is expected.