Bond Report: Treasurys rally as flare-up in U.S.-China tensions send global stocks lower

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Treasury prices rose, pushing yields lower, Thursday as a resurgence in tensions between the U.S. and China prompted investors to leave stocks for the perceived safety of haven assets including U.S. government debt.

Amid the flight from risk assets, traders will also handle a raft of data that could offer more clarity on the economy’s health as some talk up the prospect of a slowdown in 2019. Bond and stock markets were closed on Wednesday in honor of a day of mourning for George H.W. Bush, who died at 94, and as a result a number of economic reports were postponed to Thursday.

The 10-year Treasury note yield

TMUBMUSD10Y, -0.55%

  fell 2.9 basis points to 2.894%, after plumbing an intraday low at 2.876% in the Asian hours. The 2-year note yield

TMUBMUSD02Y, -2.02%

  slipped a more marked 4.7 basis points to 2.764%, while the 30-year bond yield

TMUBMUSD30Y, -0.83%

  edged down by 2.2 basis points to 3.155%. Bond prices move in the opposite direction of yields.

The spread between the 2-year note and the 10-year note, a popular gauge of the curve’s steepness, widened by 2 basis points to 13 basis points, or 0.13 percentage point. If the short-dated maturity pushes above its long-term peer, inverting the curve, analysts say a recession is likely in the following 12 to 18 months.

Stocks are poised to extend their torrid week of trading after Canadian authorities detained the chief financial officer of Huawei Technologies Meng Wanzhou, who may face extradition to the U.S. Her arrest could cast further doubt on the U.S.-China trade detente reached over the weekend as Wall Street questions the lack of details from the moratorium on the protracted tariff battle.

See: Dow futures off 400 points as arrest of Huawei exec reignites trade worries

Futures for the Dow Jones Industrial Average

YMZ8, -1.63%

  and the S&P 500

ESZ8, -1.47%

  were down more sharply.. The Japanese Nikkei

NIK, -1.91%

  fell 1.9%, while the Shanghai Composite

SHCOMP, -1.68%

  ended lower by 1.7%.

On the data front, Automatic Data Processing, Inc. will release its private-sector payrolls report for November at 8:15 a.m. Eastern, which could give an indication of the more important nonfarm payrolls numbers on Friday. Soon after, trade deficit, weekly jobless claims numbers and productivity data will come out at 8:30 a.m. Then, the Institute of Supply Management will release its nonmanufacturing index for November at 10 a.m.

The inversion of the yield curve on the shorter-end of the curve and weakness in stocks have investors concerned about an economic downturn. But economists say, for the most part, growth will continue apace as job creation picks up, with the unemployment rate at a multidecade lows of 3.7%.

“The yield curve is one of many [recession indicators]. We don’t see a recession in the next 12 months,” John Lovito, co-chief investment officer of global fixed income for American Century Investments, told MarketWatch. He added the low unemployment rate and healthy job gains suggest mounting fears over the U.S. economy may be overblown.

Read: Job creation was supposed to slow, but a funny thing happened: Hiring has sped up

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Sunny Oh is a MarketWatch fixed-income reporter based in New York.

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