BOND REPORT: Treasury Yields Tumble To 1-week Low After Fed Decision
April 27 2016 - 3:44PM
Dow Jones News
By Ellie Ismailidou, MarketWatch
Yields snapped a 7-session streak of increases; 10-year yield
posts largest single-day drop in 8 weeks
Treasury prices soared on Wednesday, pushing yields to their
lowest level in a week, after the Federal Reserve left interest
rates unchanged and took a wait-and-see view of future
interest-rate hikes.
Selling pressures in the equity market
(http://www.marketwatch.com/story/dow-futures-drop-after-apple-whiffs-on-earnings-2016-04-27),
mainly due to a selloff in Apple's (AAPL) shares following weak
quarterly results, also fueled demand for haven investments, mainly
government debt.
The yield on the benchmark U.S. 10-SHYyear note tumbled 7.1
basis points to 1.860%, its lowest level since April 20, according
to Tradeweb. One basis point is equal to oneSHY-hundredth of a
percentage point. That was the benchmark yield's largest single-day
drop since March 8.
The yield on the twoSHY-year Treasury lost 2.4 basis points to
0.841%, and the yield on the 30-SHYyear bond fell 5.7 basis points
to 2.698%.
The yield on the 10-year German bond , known as the bund, lost 1
basis point to 0.289%.
Yields had been rising for the previous seven straight sessions,
the longest streak since May 2015, reaching on Tuesday their
highest level in over a month.
But yields tumbled after the U.S. central bank essentially
confirmed "what others in the financial industry already knew,"
namely that although labor market conditions have improved, growth
in economic activity appears to have slowed,
(http://www.marketwatch.com/story/fed-stands-pat-and-is-silent-about-future-of-interest-rates-2016-04-27)said
Mary Talbutt, a fixed-income portfolio manager at The Stanley Laman
Group.
The Fed moderated its previous expression of concern about
global financial and economic developments, saying only that it was
monitoring them. In March, it expressed concern those were areas of
risk.
The market had essentially ruled out a rate increase today, but
it was pricing in "a pretty modest rate-hike path," said Robert
Tipp, Prudential Fixed Income's chief investment strategist, before
the Fed's announcement.
The Fed's statement didn't significantly alter that perspective,
said Kathy Jones, chief fixed-income strategist at Schwab Center
for Financial Research, after the announcement.
The central bank's language was "as close to expectations as you
can get. They acknowledged the weakening in the economy but also
said enough to leave the door open for June rate hike," Jones
said.
But the market was already "testing the highs of a recent
range", as yields were at their highest level in a month, which
could explain why yields tumbled after the announcement.
A closely watched measure of the market's Fed expectations, the
CME Group's FedWatch Tool
(http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html),
indicated a 23% probability of a rate increase in June after the
Fed's statement, slightly up from 21% Wednesday afternoon.
On the U.S. economic front, a flurry of data showed steady
improvement in economic conditions.
An index that tracks home contract signings
(http://www.marketwatch.com/story/pending-home-sales-rise-14-to-10-month-high-in-march-2016-04-27)
rose again in March to a 10-month high, as low interest rates
boosted homebuying.
Meanwhile, an early look at U.S. trade patterns
(http://www.marketwatch.com/story/us-trade-deficit-to-show-big-drop-in-march-advanced-report-indicates-2016-04-27)in
March pointed to a sharp drop in the nation's trade deficit. A
smaller deficit in March could give first-quarter gross domestic
product a nudge upward, though the number is still expected to be
weak.
(END) Dow Jones Newswires
April 27, 2016 15:29 ET (19:29 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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