Treasuries Move Sharply Higher Following Manufacturing Data, Powell Comments

Following the notable pullback seen in the previous session, treasuries showed a substantial move back to the upside during trading on Friday.

Bond prices jumped early in the trading day and continued to advance as the session progressed. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, tumbled 12.6 basis points to 4.352 percent.

The ten-year yield more than offset the 8.1 basis point jump seen on Thursday, falling to its lowest closing level in three months.

The early advance by treasuries came as a report from the Institute for Supply Management showed a continued contraction in U.S. manufacturing activity in the month of November, adding to optimism about the outlook for interest rates.

The ISM said its manufacturing PMI came in at 46.7 in November, unchanged from October, with a reading below 50 indicating a contraction. Economists had expected the index to inch up to 47.6.

“The weaker-than-expected ISM survey will reinforce financial markets‘ expectations that the Fed’s next move is a cut,” said Bill Adams, Chief Economist for Comerica Bank.

Treasuries saw further upside even after Federal Reserve Chair Jerome Powell’s comments calling speculation about interest rate cuts “premature” during remarks at Spelman College.

Powell acknowledged recent signs of slowing price growth but said the Fed is committed to keeping monetary policy restrictive until officials are confident inflation is on a path to 2 percent.

“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease,” Powell said.

Powell stressed the Fed is prepared to tighten policy further if it becomes appropriate, although most economists believe the central bank is done raising rates.

Jeffrey Roach, Chief Economist for LPL Financial, suggested traders viewed Powell’s comments as inching toward the dovish camp.

“A few weeks ago, Powell said policy is restrictive but today, he believes policy is ‘well into restrictive territory,'” Roach said. “I think it’s fair for markets to latch on to that subtlety.”

The Labor Department’s closely watched monthly jobs report is likely to move into the spotlight next week, while traders are also likely to keep an eye on reports on service sector activity, job openings and consumer sentiment.

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