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Treasuries Move To Upside Following Weak Manufacturing Data

After initially showing a lack of direction, treasuries showed a strong move to the upside following the release of weak U.S. manufacturing data.

Bond prices gave back some ground over the course of the afternoon but remained firmly positive. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, slid 4 basis points to 1.466 percent.

The ten-year yield hit a three-year intraday low of 1.429 percent shortly after the release of a report from the Institute for Supply Management showing U.S. manufacturing activity contracted for the first time in three years.

The ISM said its purchasing managers index fell to 49.1 in August after dipping to 51.2 in July, with a reading below 50 indicating a contraction in manufacturing activity. Economists had expected the index to edge down to 51.0.

With the bigger than expected decrease, the PMI dropped below 50 for the first time since August of 2016 and hit its lowest level since January of 2016.

"Comments from the panel reflect a notable decrease in business confidence," said Timothy R. Fiore, Chair of the ISM Manufacturing Business Survey Committee.

He added, "August saw the end of the PMI expansion that spanned 35 months, with steady expansion softening over the last four months."

A separate report from the Commerce Department showed construction spending inched up by less than expected in the month of July.

The strength among treasuries also came after new tariffs took effect over the Labor Day weekend in the escalating U.S.-China trade.

The U.S. officially imposed a 15 percent tariff on approximately $112 billion worth of Chinese imports, leading to Chinese retaliatory tariffs on billions of dollars worth of U.S. goods.

President Donald Trump repeated his claim in remarks to reporters on Sunday that China is paying for the tariffs by devaluing their currency.

Trump indicated U.S. and Chinese officials still plan to meet for trade talks this month but argued the U.S. "can't allow China to rip us off anymore as a country."

In a series of tweets this morning, Trump threatened to get tougher on China if he wins re-election and dismissed suggestions that he work with the European Union to go after Chinese trade practices.

Trading on Wednesday may be impacted by reaction to remarks by several Federal Reserve officials as well as the Fed's Beige Book, a compilation of anecdotal evidence on economic conditions in the twelve Fed districts.

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