BOND REPORT: 10-year Treasury Yield Briefly Tops 3%

Date : 09/14/2018 @ 12:08PM
Source : Dow Jones News

BOND REPORT: 10-year Treasury Yield Briefly Tops 3%

By Sunny Oh

The yield on the 10-year Treasury note briefly topped 3% Friday, its first foray above the threshold in six weeks, as data showed economic momentum remained solid enough to keep the Federal Reserve hiking at its current steady pace.

The 10-year Treasury note yield rose 3.4 basis points to 2.998%, after touching 3.001%, according to Tradeweb. The 2-year note yield rose 2.5 basis points to 2.782%, its highest since July 2008. The 30-year bond yield added 3.5 basis points to 3.136%. Bond prices move in the opposite direction of yields.

Investors contended with a mixed batch of economic data. Retail sales rose 0.1% in August, below the 0.3% expected from economists polled by MarketWatch (http://www.marketwatch.com/story/retail-sales-grow-by-smallest-amount-in-six-months-but-spending-primed-to-rebound-2018-09-14). Also, import prices fell 0.6% in August. Investors may have to wait longer for domestic consumption to percolate into stronger inflationary pressures.

On the other hand, there are plenty of signs the U.S. economy hasn't lost steam. Industrial production rose 0.4% in August (http://www.marketwatch.com/story/us-industrial-production-up-for-third-straight-month-on-strength-in-autos-2018-09-14), while the University of Michigan's consumer sentiment index jumped to 100.8 (http://www.marketwatch.com/story/americans-bullish-on-economy-toward-end-of-summer-consumer-sentiment-shows-2018-09-14), the highest since March, and the second highest reading since Jan. 2004.

"The data broadly support our view that the Fed will press ahead and keep raising interest rates by 25 basis points once a quarter between now and the middle of next year, with the next hike coming later this month," wrote Oliver Jones, an analyst at Capital Economics.

Adding momentum to Friday's yield climb, traders said hopes for ebbing trade tensions between the U.S. and China sapped demand for haven assets like U.S. government paper, after reports earlier this week said some officials in the Trump administration were planning to propose a new round of talks with Beijing. But Trump later said there was no urgency to strike a trade deal with China.

Meanwhile, analysis by J.P. Morgan shows more companies are starting to highlight trade risks in their earnings calls (http://www.marketwatch.com/story/trade-war-risks-ramp-up-for-stocks-as-companies-start-curtailing-investment-2018-09-13). The latest iteration of the Fed's Beige Book, a collection of anecdotes from businesses across the country, show some firms have already rowed back their investment plans amid growing uncertainty on the trade front.

"Concerns about the trade war with China appear to have boosted safe-haven flows into Treasurys, for example. This could plausibly happen again. But we doubt that it would be enough to offset the upward pressure on yields from monetary policy, especially with the fiscal stimulus and Fed balance sheet reduction still boosting supply in the background," said Jones.

On the monetary policy front, Chicago Fed President Charles Evans said senior Fed officials have circled around the consensus that the economic outlook was favorable (http://www.marketwatch.com/story/fed-officials-singing-the-same-tune-on-rosy-economic-outlook-evans-says-2018-09-14).

 

(END) Dow Jones Newswires

September 14, 2018 11:53 ET (15:53 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.
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