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10-year Treasury yield logs steepest daily climb in four months after upbeat data

Treasury prices fell Monday, pushing yields higher, as global stock markets rallied after a robust round of U.S. and Chinese economic data sapped appetite for haven assets like government paper.

The 10-year Treasury note yield TMUBMUSD10Y, -1.04%  surged 8 basis points to 2.496%, while the 30-year bond yield TMUBMUSD30Y, -0.49%  climbed 7 basis points to 2.890%. Both long-dated maturities marked their biggest daily increases since Jan. 4. The 2-year note yield TMUBMUSD02Y, -1.72%  was up 5 basis points to 2.326%, contributing to its biggest one-day rise since Jan. 8. Bond prices move inversely to yields.

China’s manufacturing purchasing managers index rose to 50.5 in March, from 49.2 in the previous month, while its nonmanufacturing gauge also increased to 54.8 in March, from 54.3 in February. A reading of 50 indicates an uptick in industrial activity, while a reading below reflects a slowdown. As one of the key drivers of the global financial cycle, China’s ability to recover from its recent low point is being watched by traders on the lookout for stabilizing global growth.

“The start of a new quarter, trade optimism and a bounce in Chinese PMI data have conspired to trigger an outbreak of bullish risk sentiment on April [Fools’] Day,” wrote Kit Juckes, global macro strategist at Société Générale.

The improving economic activity gave a lift to stocks and other risk assets. China’s CSI 300 index 000300, +0.11% finished higher by 2.6%, while Japan’s Topix index I0000, -0.06% gained 1.5%. The S&P 500 SPX, +1.16% and the Dow Jones Industrial Average DJIA, +1.27% ended higher.

The buoyant mood in risk assets comes as China’s Vice Premier Liu He visits Washington this week for trade negotiations, after China hosted a U.S. delegation led by U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in Beijing.

Yields also received a boost after a better-than-expected industrial data suggested factory activity was picking up after a recordlong government closure and winter weather. Stronger economic growth can weigh on bond prices, and lift debt yields, if investors expect an uptick in inflationary pressures, a corrosive influence on a bond’s fixed-income payments.

The Institute for Supply Management’s manufacturing index rose to 55.3 in March, well above the forecast of a 54.3 reading from MarketWatch polled economists. On a more mixed note, February’s retail sales fell 0.2%, versus expectations for a 0.3% increase.

“Above-expectations ISM (and sub components) support the popular notion that March data would demonstrate that early first-quarter weakness was due to weather and the government shutdown,” said Jim Vogel, an interest-rate strategist at FTN Financial, in a Monday note.

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