US Treasury prices stumbled lower to start the holiday-shortened week Tuesday with the long end taking the most heat while the two-year outperformed, further steepening the yield curve. An expected run of new corporate bond supply and better manufacturing data added to the ongoing concerns over US trade relations. The 10- and 30-years were dragged to the lowest levels since Aug. 10 and Aug. 14, respectively.

The 30-year yield settled near 3.07% from a 3.0721% high, 3.0199% low and 3.009% close Friday. The 10-year yield went out near 2.90% versus a 2.9067% high, 2.8531% low and 2.853% close. The five-year yield settled near 2.775% against a 2.7803% high, 2.7314% low and 2.735% Friday. The two-year yield went out near 2.66% from a 2.675% high, 2.6289% low and 2.629% close.

The curve trade settled steeper with the two- and 10-year yield differential widened to near 24 from 22.4 Friday while the five- and 30-year yield spread near 29.5 from 27.4.

Analysts with DA Davidson are closely watching the yield curve, noting the two- and 10-year yield spread was near 20 basis points to end the week, near levels last seen in 2007, “down from a spread of 52” at the close of 2017. They noted that while an inverted curve “has been a fairly reliable recession indicator,” but added that one explanation for the flattened curve is that 10-year bond prices remain “high due to very low global rate alternatives,” and another that “bond investors are more skeptical of sustained 3%” gross domestic product (GDP). They anticipate 25 bp arte-hikes at both the Sept. 25 – 26 and Dec. 18 – 19 Federal Open Market Committee (FOMC) meetings.

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While data releases slow Wednesday the week is littered with Fed officials’ appearances starting with St. Louis President James Bullard with New York’s John Williams speaking throughout the day, capped by Atlanta’s Raphael Bostic. Friday will see talks from Boston’s Eric Rosengren on low long term interest rates, Cleveland’s Loretta Mester on markets and Dallas’ Robert Kaplan ends the week speaking on energy and the economy.

Data was mixed but overall stronger with better manufacturing and vehicle sales reports versus weaker construction spending.

The August Institute for Supply Management’s (ISM) manufacturing report was the strongest since May 2014, with analysts with Action Economics writing that “gains for the jobs and new orders indexes” signal “upside risk for the August jobs report.”

On the ISM data, Derek Holt, Scotiabank economist, wrote that the headline has “risen by a whopping 13.5 points since the start of 2016 as the upward trend a) began before the US election and b) has been resilient to trade policy irritants.” Holt noted that increases across the “subcomponents reflect strong breadth across manufacturing subsectors” with “89% of all industries” reported growth and majorities showed faster new orders and production, along with increased prices paid. The 56% increase in hiring, however, was down from 72% previously.

Wednesday offers the weekly Mortgage Bankers’ Association applications index at 7 am ET with the July trade balance due at 8:30 am.

Fedspeakers offer Bullard on the economy and monetary policy at 9:20 am, with Williams speaking with local officials from 12:30 pm (scheduled again at 3 pm and 5:30 pm). Minneapolis’ Neel Kashkari attends a town hall at 4 pm with Bostic on the economic outlook and policy at 6:30 pm.

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