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Treasuries Move Higher Amid Concerns About Global Economy

Following the strong upward move seen on Monday, treasuries saw some further upside during the first trading day of 2019 on Wednesday.

Bond prices gave back ground after an initial jump by remained in positive territory throughout the day. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.5 basis points to 2.661 percent.

The ten-year yield climbed off its intraday low of 2.649 percent but still ended the session at its lowest closing level in eleven months.

Treasuries continued to benefit from their appeal as a safe haven as concerns about the global economy resurfaced following the release of a report showing a contraction in Chinese manufacturing activity in the month of December.

The report said the Caixin/Markit manufacturing purchasing managers' index edged down to 49.7 in December from 50.2 in November. The reading below 50 indicated the first contraction in nineteen months.

Iris Pang, Greater China Economist at ING, noted the disappointing manufacturing data comes on the heels of reports showing an annual drop in industrial profits and softer retail sales growth.

"We believe that the data reflect that not only has the trade war damaged growth in the export sector. It has also hurt export-related supply chain companies and in turn, domestic demand," Pang said.

"If domestic demand is not supported by fiscal stimulus quickly, then further weakening will pose a risk to job security," she added. "That could create a vicious downwards cycle."

The ongoing government shutdown in the U.S. also contributed to the appeal of bonds amid news President Donald Trump has invited congressional leaders to a meeting this afternoon.

The meeting comes as the partial government shutdown has entered its twelfth day due to an impasse over funding for Trump's controversial border wall.

Democrats are due to take control of the House on Thursday and intend to move forward with plans to reopen the government without providing funding for the wall, although the White House has called the plan a "non-starter."

In remarks to reporters ahead of the meeting, Trump indicated the partial government shutdown will continue for "as long as it takes," standing by his demand for $5 billion for the border wall.

The meeting is not expected to result in a major breakthrough in negotiations, with a Capitol Hill source telling CNN the meeting "appears to be more of a White House stunt than serious attempt to have a discussion."

Trading on Thursday may be impacted by reaction to U.S. reports on private sector employment, weekly jobless claims and manufacturing activity.

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