By Joseph Adinolfi, MarketWatch

Uncertainty surrounding fiscal, monetary policy outlooks entices investors back into U.S. debt

Treasury yields were on track Friday to decline for a third day as investors bought back into bonds after Federal Reserve officials sounded reluctant to raise interest rates at the central bank's upcoming meeting.

The yield on the 10-year Treasury note dropped two basis points to 2.352%, its lowest level since Feb. 9. The yield on the two-year note slid 1.1 basis point to 1.173%. The yield on the 30-year bond shed 2.8 basis points to 2.985%. Bond yields move inversely to prices.

In minutes from the Federal Reserve's most recent two-day policy, which were released on Wednesday, officials agreed that President Donald Trump's fiscal policies remained a wild card, though short-term risks to the economy appeared balanced.

Treasurys sold off sharply following Trump's Nov. 8 electoral victory, in part due to the expectation that his administration would move swiftly to pass sweeping economic reform measures, including corporate tax cuts, increased infrastructure spending and deregulation. Now, investors have begun to second-guess those moves, market strategists said.

Despite assurances from Treasury Secretary Steven Mnuchin that the administration would enact its tax-reform plans before Congress's August recess, the lack of details surrounding Trump's plans has helped support the battered bond market as investors bet that the economic impact of any new measures would be limited in 2017.

Growing tensions between Mexico and the U.S. have also helped entice investors back into safety plays like Treasurys, said Karissa McDonough, fixed-income strategist at People's Bank.

Secretary of State Rex Tillerson and Department of Homeland Security Secretary John Kelly visited Mexico earlier in the week and emphasized their desire to maintain cordial relations between the two neighboring countries.

"There really is demand for stability and safety when it's not super clear if there's going to be a border-adjusted tax or how relations will be carried out with other sovereign nations," McDonough said.

Later Friday morning, investors will digest the University of Michigan's consumer-sentiment survey, as well as comments from Trump, who is slated to speak at the Conservative Political Action Conference.

 

(END) Dow Jones Newswires

February 24, 2017 10:11 ET (15:11 GMT)

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