Treasury Yields Drift Lower
December 23 2016 - 3:13PM
Dow Jones News
By Sam Goldfarb
U.S. government bond yields drifted lower Friday, as the bond
market continued its quiet march to the end of the year.
In late-afternoon trading, the yield on the benchmark 10-year
Treasury note was 2.542%, compared with 2.550% Thursday and 2.600%
last Friday. Yields fall when bond prices rise.
After more than a month of intense selling, the bond market has
settled down over the past few days, showing few signs of breaking
out of a tight trading range.
Bond prices were supported early Friday by a stream of news
reports on terrorist activity, giving traders a reason to purchase
haven debt ahead of the long weekend, said Ian Lyngen, head of U.S.
rates strategy at BMO Capital Markets.
The bond market closed early at 2 p.m. EST and will remain shut
Monday to observe the Christmas holiday.
Treasury prices had edged lower Thursday after the U.S. economy
was reported to have grown at a faster pace than previously
reported. Other data, however, showed little momentum behind higher
inflation, providing a note of caution to investors who have been
selling bonds partly out of fear that consumer prices could surge
next year.
Defying the expectations of many analysts, Treasury yields have
soared after the November election. Investors have bet that
President-elect Donald Trump and a Republican-controlled Congress
will increase the budget deficit by cutting taxes and boosting
spending on defense and infrastructure.
A more expansive fiscal policy could diminish the value of
outstanding government debt by adding to the supply of bonds. It
could also spur growth and inflation, which would erode the fixed
returns of bonds and possibly lead the Federal Reserve to quicken
its pace of interest-rate increases.
The postelection bond selloff briefly gained new momentum last
week when the Fed raised rates for the second time since 2006 and
signaled it expects to lift rates three times next year, up from
its previous estimate of two times.
Investors, though, now seem content to wait until the new year
to place their next major bets on the market. Some say it is
difficult to know where Treasurys should trade until there is more
clarity about federal budget policy.
"It will be interesting year in 2017, but the rest of 2016 seems
to be a bit of a yawn," Mr. Lyngen said.
COUPON ISSUE Price CHANGE YIELD CHANGE
1% 2-year 99 20/32 dn 1/32 1.205% +0.8BPS
1 3/8% 3-year 99 17/32 flat 1.542% flat
1 3/4% 5-year 98 22/32 up 1/32 2.029% -0.3BPS
2 1/8% 7-year 98 19/32 up 2/32 2.346% -0.7BPS
2% 10-year 95 9/32 up 2/32 2.542% -0.7BPS
2 7/8% 30-year 95 11/32 up 7/32 3.116% -1.1BPS
2-10-Yr Yield Spread: +133.7BPS Vs + 135.4BPS
Source: Tradeweb/WSJ Market Data Group
(END) Dow Jones Newswires
December 23, 2016 14:58 ET (19:58 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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