BOND REPORT: Treasury Yields Fall As Investors Look Ahead To Central Bank Meetings
July 17 2017 - 10:14AM
Dow Jones News
By Sunny Oh
10-year benchmark Treasury on track to slip below 2.30%
Treasury yields declined Monday, extending a fall spurred last
week as dovish speeches by Federal Reserve officials and tepid
inflation figures stoked buying interest in U.S. government
paper.
The 10-year Treasury yield fell 1.3 basis points to 2.321%. The
yield on the 2-year note declined 2.4 basis points to 1.344%, while
the 30-year yield fell 1 basis point to 2.912%. Bond prices move
inversely to yields.
Treasury yields continued to act on last week's testimony from
Fed Chairwoman Janet Yellen. Market participants interpreted that
she held concerns that weak inflation could delay the schedule for
a more aggressive pace of rate hikes. This newfound caution after
repeating the mantra that weakness in economic data was transitory
in previous comments spurred bond-buying.
There will be no Fed speakers this week as the central bank
heads into its blackout period before its July 25-26 gathering.
Elsewhere, the European Central Bank and the Bank of Japan will
hold their policy meetings this week. Investors have paid more
attention to monetary policy makers after a central bankers'
conference in Portugal last month appeared to portend an eventual
tightening of the easy-money policies introduced after the
financial crisis.
European bond yields pared their gains from last week, which
were driven by reports that ECB President Mario Draghi was planning
to deliver a speech at the Federal Reserve's Jackson Holey
symposium next month. He is expected announce his confidence in the
eurozone's economic recovery to prepare for a tapering of the ECB's
bond-buying program.
10-year German Treasury yields fell 2.8 basis points Monday
ahead of the latest meeting on Thursday to discuss monetary policy.
French 10-year government bond yields, or OATs, edged off 2.9 basis
points to 0.84%.
But the case for moving away from easy-money policies has abated
after a recent run of weak inflation numbers. Annual consumer price
growth for the eurozone fell to 1.3% in June, after hitting a
three-year high of 1.9% in April. The deteriorating inflation
readings continue to miss the ECB'S target of below, but close to,
2% (https://www.ecb.europa.eu/mopo/html/index.en.html).
Over the weekend, emergency surgery for Sen. John McCain,
R-Ariz., raised the prospect of further congressional deadlock,
complicating the push to repeal and replace Obamacare. The
Republicans are now missing enough votes to pass the latest version
of the health care bill through the Senate.
Despite holding majorities in both houses of Congress, President
Donald Trump's administration has had trouble carrying out its
pro-growth agenda. This has faded the so-called "Trump Bump" which
lifted Treasury yields higher as bond investors raised inflation
expectations.
"We're not sure there's much left in the market in terms of
optimism related to legislative progress, however any news of
further delays or a logjam is marginally additive to our already
bullish call for U.S. Treasurys," said Ian Lyngen, head of U.S.
rates strategy for BMO Capital Markets, in a note to clients.
See: McCain's surgery will delay vote on GOP health-care bill
(http://www.marketwatch.com/story/mccains-surgery-will-delay-vote-on-gop-health-care-bill-2017-07-16)
On the economic data front, the Empire State Manufacturing
survey fell to 9.8 from 19.8
(http://www.marketwatch.com/story/empire-state-manufacturing-index-retreats-in-july-from-two-year-high-2017-07-17).
A measure of manufacturers' health in New York state, a positive
number nevertheless represents an improvement. In the last six out
of seven months, the index has been positive.
(END) Dow Jones Newswires
July 17, 2017 09:59 ET (13:59 GMT)
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