Treasurys Pull Back as AT&T Prints Year's Largest Corporate-Bond Deal
July 27 2017 - 5:01PM
Dow Jones News
By Sam Goldfarb
U.S. government bonds pulled back Thursday as investors prepared
for a jumbo bond offering from AT&T Inc. and the last of this
week's Treasury-note auctions.
The yield on the 10-year Treasury note settled at 2.312%,
compared with 2.285% Wednesday. Yields rise when bond prices
fall.
Treasurys were pressured in part by AT&T, which was poised
to sell $22.5 billion of bonds to help fund its pending acquisition
of Time Warner Inc. That marks the largest U.S. corporate bond deal
since January 2016, when Anheuser-Busch InBev NV issued $46 billion
of bonds to investors, according to Dealogic.
Large corporate-debt sales can sometimes make a dent in the
Treasurys market as underwriters sell Treasurys to neutralize
unwanted swings in interest rates and fund managers look to free up
cash to absorb the new bonds.
A $28 billion auction of seven-year Treasury notes also weighed
on the market Thursday, following sales of two-year and five-year
notes earlier in the week.
In addition, fresh data showed that sales of durable goods rose
in June at the quickest pace in nearly three years, providing a
relatively upbeat assessment of the economy a day before investors
get their first reading on second-quarter economic growth.
AT&T's offering was "a big deal, but we also got
better-than-expected durable goods numbers," said Larry Milstein,
head of government and agency trading at R.W. Pressprich & Co.
"That combination is weighing on the market."
Thursday's move added to a choppy run of trading sessions for
Treasurys, which sold off to start the week before rallying
Wednesday after the Federal Reserve left interest rates unchanged
and issued its latest policy statement.
Investors and analysts said the statement generally offered few
surprises, leaving the door open to another interest-rate increase
this year but not committing to one. That boosted the appeal of
Treasurys, which generally benefit from looser monetary policy.
Months of soft inflation data have helped support bond prices,
as lower inflation helps preserve the purchasing power their fixed
payments. Tepid inflation has also depressed expectations for
future rate-increases from the Fed. Though higher than the historic
lows it reached in 2016, the yield on the 10-year note is still
well below where it started the year.
The strong reception for AT&T's bond sale suggests that
investors don't anticipate a big rise in Treasury yields, which
would hurt the value of high-quality corporate debt, said Scott
Kimball, portfolio manager of BMO TCH Core Plus Bond Fund.
Current market indicators suggest investors are highly skeptical
that inflation will reach the Fed's 2% target. "In that case, it's
difficult to envision rates move higher in a way that's detrimental
to investors," Mr. Kimball said.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
July 27, 2017 16:46 ET (20:46 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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