Bond Report: Treasury yields struggle for direction as investors eye earnings

Treasury yields held their ground Monday as investors turn their attention towards how stocks handle the risk of a so-called earnings recession, amid a lack of first-tier economic data.

Traders will enjoy a holiday-shortened week as stock and bond markets will be closed for Good Friday on April 19.

The 10-year Treasury note yield TMUBMUSD10Y, +0.05% was virtually unchanged at 2.563%. The 2-year note yield TMUBMUSD02Y, +0.00% was up 0.5 basis point to 2.398% The 30-year bond yield TMUBMUSD30Y, -0.09% remained steady at 2.972%. Debt prices move inversely to yields.

In holiday-thinned trading, analysts say they anticipate bonds to take their cue from the performance of risk assets and stocks this week as investors watch if S&P 500 firms’ first-quarter earnings will decline SPX, +0.66%  for the first time in three years. If equities lose their upward momentum this week, appetite for haven assets could send prices for government paper higher, and yields lower.

“An earnings contraction doesn’t necessarily portend a true economic recession; much the same as the inversion of the 3-month bill/10-year yields curve doesn’t. That said, there is mounting evidence of the fallout from the known economic headwinds – to say nothing of those yet to be revealed,” said Ian Lyngen, head of U.S. rates strategy, in a Monday note.

Trade tensions, bad weather, a government shutdown, rising input costs have all been cited as obstacles against further earnings growth among the U.S.’s largest firms. The consensus estimate is for earnings to fall 4.7% in the first-quarter, FactSet data show.

See: Risk of earnings recession rises, as S&P 500 profits to fall for first time in 3 years

In economic data, the Empire State Survey for April will come out at 8:30 a.m. Eastern time. Later, Chicago Fed President Charles Evans will speak about monetary policy at 12 p.m.

Finally, the Treasury International Capital report will be released at 4 p.m. Eastern, which could give clues on demand for U.S. debt among foreign investors.

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