BOND REPORT: Treasurys Mixed After 10-year Yield Hits 7-year Peak
May 16 2018 - 2:01PM
Dow Jones News
By William Watts and Mark DeCambre, MarketWatch
Yield curve steepens as 2-year yield declines
Treasurys were putting in a mixed performance Wednesday, with
the yield curve steepening as short-dated yields fell and longer
dated yields edged higher a day after the benchmark 10-year
Treasury yield hit a nearly seven-year high.
How are Treasurys performing?
The 10-year Treasury note yieldrose 0.8 basis point to 3.084%, a
day after registering the largest single-day climb since March 1,
according to WSJ Market Data Group. The yield hit an intraday peak
above 3.09% Tuesday, its highest since 2011. Yields and debt prices
move in opposite directions.
The 30-year bond yieldrose 0.42 bsis point to 3.211%, after the
long bond marked its largest daily yield climb since Feb. 2 in the
previous session. The short-dated 2-year note yield , meanwhile,
edged 0.8 basis point lower to 2.577%.
The yield curve, as measured by the spread between the 2- and
10-year yields, reversed some of its recent flattening. A
flattening curve can be read as a sign of concerns about future
economic growth, though it is an outright inversion of the curve --
with short-dated yields moving above long-dated yields -- that
serves as a reliable recession warning sign.
What's driving the market?
Investors watched events in Asia, with North Korea's threat to
pull out of a summit planned for next month with the U.S. sparking
worries that a brief detente between Pyongyang and Washington may
be near an end.
Read:North Korea threatens to call off U.S. summit if Washington
insists on denuclearization
(http://www.marketwatch.com/story/north-korea-threatens-to-call-off-us-summit-if-washington-insists-on-denuclearization-2018-05-16)
Italian government bond yields jumped after a report said
antiestablishment parties in talks to form a government would ask
the European Central Bank to write off 250 billion euros ($296
billion) in debt
(http://www.marketwatch.com/story/italian-markets-spooked-as-radical-agenda-from-5-star-league-fuels-fears-of-new-crisis-2018-05-16)
and seek to renegotiate Rome's contribution to the European Union
budget.
Read:Italian bonds show euro 'exit' fears still rumble below the
surface
(http://www.marketwatch.com/story/italian-bonds-show-euro-exit-fears-still-rumble-below-the-surface-2018-05-16)
What are strategists saying?
"The U.S. 10-year yield [temporarily] rose above 3.07% key
resistance, but the test is ongoing," wrote analysts at KBC Bank,
in a Wednesday note. "The same goes for the test of 3.22% in the
30-year yield."
"Treasury yields broke out above late April highs yesterday, and
as seen in monthly charts below, this had even bigger implications
for the longer-term trend channel. No countertrend evidence of
exhaustion was present, so near-term yield pullbacks would
represent a chance to sell Treasurys, expecting higher yields into
late May/early June before any peak," wrote Mark Newton, technical
analyst at Newton Advisors in a Wednesday research note.
What data and Fed speakers are in focus?
Construction on new houses in the U.S. fell 3.7% in April
(http://www.marketwatch.com/story/housing-starts-drop-37-in-april-but-stick-near-11-year-high-2018-05-16),
with the annual rate falling to 1.29 million homes, in line with
forecasts.
Atlanta Federal Reserve President Raphael Bostic was due to
address the economic outlook at Georgia's Augusta Cotton
Exchange.
The Federal Reserve said industrial production rose 0.7% in
April
(http://www.marketwatch.com/story/industrial-output-climbs-07-in-april-2018-05-16),
slightly stronger than Wall Street expectations for a 0.6% rise. A
mix of revisions to the previous two months were net negative but
still saw output grow at a 2.3% rate in the first quarter.
Check out:MarketWatch's Economic Calendar
(http://www.marketwatch.com/economy-politics/calendars/economic)
What are other assets doing?
The yield on the 10-year Italian government bondjumped 16.2
basis points to 2.113%.
The 10-year German bond yieldfell 4.65 basis points to 0.602%.
The German bond, or bund, is viewed as the eurozone's risk-free
security.
(END) Dow Jones Newswires
May 16, 2018 13:46 ET (17:46 GMT)
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