By Min Zeng
Investors sold U.S. government bonds Thursday as the latest
round of data from several big economies soothed fears over the
global economic outlook.
Bonds have declined for three straight days, sending the yield
on the benchmark 10-year note to the highest level in two weeks.
Yields on government bonds in Germany and the U.K., two other bond
markets perceived as relatively safe, also rose. U.S. stocks
rallied.
In recent trading, the 10-year note was 12/32 lower, yielding
2.275%, according to Tradeweb. Yields rise as prices fall.
The yield touched 2.282%, the highest intraday level since Oct.
10. It remains sharply lower from 3% at the start of the year.
The flight out of haven bonds suggests sentiment in the global
financial markets has improved from last week's turmoil. Economic
data this week have eased worries that the eurozone could slip into
recession, China's growth could slow down more sharply and that the
U.S. economy could be affected by weak growth overseas.
On Thursday, a monthly composite purchasing managers index, a
measure of activity in the manufacturing and services sectors in
the eurozone, rose to 52.2 in October from 52.0 in September. A
gauge of the manufacturing sector in China rose to 50.4 this month
from 50.2 in September. A figure above 50 indicates that an
industry is expanding.
Meanwhile, data suggested continued improvement in the U.S.
labor market. The four-week moving average for initial claims,
which smooths out week-to-week volatility, fell 3,000 to 281,000,
its lowest level since May 2000.
"To fuel a bond market rally, we need bad news," said Jason
Evans, co-founder of hedge fund NineAlpha Capital LP in New York.
"The global landscape is marginally improved and Treasury bonds are
expensive to buy at these still very low yield levels."
As fear over global growth intensified last week, the yield on
the 10-year note fell to as low as 1.87%, the lowest intraday level
since May 2013.
Brian Edmonds, head of interest rates at Cantor Fitzgerald LP in
New York, said he doesn't expect the yield to rise significantly
from here given that there is still considerable uncertainty over
the global growth outlook.
Charles Comiskey, head of Treasury trading at Bank of Nova
Scotia in New York, said he would refrain from putting large bets
on bond yields, known as shorts, to rise significantly.
Many of these short bets were closed last week when the 10-year
note's yield fell below 2%. "Unless we have an inflation scare in
the U.S., I don't think bond yields will rise sharply," Mr.
Comiskey said.
Some traders caution that sentiment could sour on riskier assets
if concerns over global growth escalate again.
"Look for stocks to encounter better selling on rallies and for
Treasury prices to rebound over the next two weeks," said Tom di
Galoma, head of fixed income rates in New York at ED&F Man
Capital Markets. He said the 10-year note's yield could fall to 2%
again if stocks sell off.
For the moment, with financial market sentiment improving, some
traders and investors expect the Federal Reserve to end its
bond-buying program next week. The central bank has gradually
reduced its purchases since the start of this year. The stimulus
has helped keep Treasury yields near historic lows as a way to
encourage consumer spending and business investments.
Fed policy makers are likely to continue to signal patience when
it comes to eventually raising interest rates, analysts said.
Over the past few weeks, bond traders and investors have dialed
back expectations for the timing of the first interest-rate
increase from both the Fed and the Bank of England. Some investors
now believe the Fed may wait until the second half of 2015, if not
longer, to raise short-term interest rates.
-- Write to Min Zeng at min.zeng@wsj.com