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Treasuries Move Sharply Higher On Weak Data, Trump's New Tariff Threat

After moving modestly higher early in the session, treasuries saw further upside over the course of the trading day on Thursday.

Bond prices jumped to new highs in mid-afternoon trading before closing substantially higher. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, plunged by 12.7 basis points to 1.894 percent.

With the steep drop on the day, the ten-year yield closed below 2 percent for the first time in a month, ending the session at its lowest closing level since Election Day of 2016.

Treasuries initially benefited from the release of some weaker than expected U.S. economic data, including a report from the Institute for Supply Management unexpectedly showing a continued slowdown in manufacturing growth in the month of July.

The ISM said its purchasing managers index dipped to 51.2 in July after edging down to 51.7 in June. While a reading above 50 still indicates growth in manufacturing activity, economists had expected the index to inch up to 52.0.

With the continued decrease, the purchasing managers index dropped to its lowest level since hitting 49.6 in August of 2016.

A separate report from the Commerce Department showed U.S. construction spending plunged by 1.3 percent to in June after falling by 0.5 percent in May.

Treasuries saw further upside in afternoon trading as traders looked for safe havens after President Donald Trump announced plans to impose a 10 percent tariff on the remaining $300 billion worth of Chinese imports.

Trump revealed the plan in a post on Twitter on Thursday shortly after U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin wrapped up the latest round of trade talks in Shanghai.

"Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal," Trump tweeted.

He added, "We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing."

Trump accused China of failing to follow through on pledges to buy large quantities of U.S. agricultural products and stop the sale of Fentanyl to the U.S.

"Trade talks are continuing, and during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country," Trump said.

He added, "We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one!"

Trump noted that products targeted by the new tariffs do not include the $250 billion worth of Chinese goods already being tariffed at 25 percent.

Looking ahead, the monthly jobs report is likely to be in focus on Friday, overshadowing separate reports on the U.S. trade deficit, consumer sentiment, and factory orders.

Employment is expected to climb by 164,000 jobs in July after jumping by 224,000 jobs in June, while the unemployment rate is expected to hold at 3.7 percent.

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