August 22, 2019 / 1:36 PM / 6 months ago

TREASURIES-Yields rise on strong European data, ahead of Fed's Powell

    * German business data improves
    * U.S. jobless claims drop in latest week
    * Fed's Powell to speak on Friday 

    By Karen Brettell
    NEW YORK, Aug 22 (Reuters) - Treasury yields rose on
Thursday after better than expected manufacturing data in Europe
boosted risk sentiment, and as investors waited on a speech by
Federal Reserve chairman Jerome Powell on Friday.
    Euro zone business growth picked up a touch in August,
helped by brisk services activity and as manufacturing
contracted at a slower pace. Still, trade war fears knocked
future expectations to their weakest in over six years.
    “We had good data in Europe, some of the manufacturing PMIs
are coming off the bottom and were better than expected, that
set the tone coming into the morning,” said Tom Simons, a money
market economist at Jefferies in New York.
    U.S. data also showed that the number of Americans filing
applications for unemployment benefits fell sharply last week,
suggesting the labor market was holding firm despite a
manufacturing slowdown and concerns the economy is on a path
toward recession.             
    Benchmark 10-year notes            were down 9/32 in price
to yield 1.606%, up from 1.577% late on Wednesday.
    Fed policy is in focus as investors evaluate the likelihood
that the U.S. central bank will cut rates when it meets next
    The Fed cut rates by 25 basis points at the close of its
July 30-31 meeting, with minutes for the meeting published on
Wednesday showing broad concern among policymakers over a global
economic slowdown, trade tensions and sluggish inflation.
    Policymakers were divided on cutting rates in July, however,
despite being united in wanting to avoid the appearance of being
on the path to further rate cuts.             
    The bond market has priced in a far more bearish picture on
the economy since the Fed’s July meeting.
    The two-year, 10-year yield curve inverted last week for the
first time since 2007, a signal that a recession is likely in
one to two years. The curve also briefly inverted on Wednesday
after the Fed minutes were released.
    The curve                was last one basis point.
    Interest rate futures traders are pricing in a 96% 
probability of a rate cut at the Fed's September meeting, a 64%
chance of an additional cut in October, and a 39% likelihood of
another cut in December, according to the CME Group's FedWatch

 (Editing by David Gregorio)
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