BOND REPORT: Treasury Yields Edge Higher On Eve Of Yellen's Jackson Hole Speech
August 25 2016 - 4:18PM
Dow Jones News
By William Watts, MarketWatch
Markets behaving 'like they've eaten too much cake'
Treasurys weakened Thursday, allowing yields to rise ahead of an
eagerly awaited Friday speech by Federal Reserve Chairwoman Janet
Yellen.
The yield on the 10-year Treasury note rose 1.9 basis points to
1.576%, according to Tradeweb. Yields rise as debt prices decline;
a basis point is a hundredth of a percentage point.
Yields initially extended their rise after data showed a
stronger-than-expected rebound
(http://www.marketwatch.com/story/us-durable-goods-orders-jump-44-in-july-2016-08-25)
in orders for durable goods in July and a dip in first-time
applications
(http://www.marketwatch.com/story/jobless-claims-dip-to-261000-layoffs-still-scarce-2016-08-25)
for unemployment benefits.
Traders have stayed on the sidelines ahead of Yellen's speech at
the Kansas City Fed's annual symposium in Jackson Hole, Wyo., which
will be closely followed for clues to the timing of the central
bank's next rate increase. Analysts said the Thursday data was
unlikely to change the calculus.
Read:Fed might hike interest rates despite market objections
(http://www.marketwatch.com/story/fed-going-out-to-jackson-hole-to-get-divorce-from-markets-2016-08-23)
"We do not think these will change the backdrop of weak U.S.
economic growth that has been in place since at least 4Q15," said
Rob Carnell, chief international economist at ING Bank.
"Against this backdrop, Janet Yellen will struggle to make a
strong case for imminent further tightening at her Jackson Hole
speech later on Friday--though no doubt she will try to maintain an
optimistic view, and keep further tightening options open," he
said.
A hawkish tone from Yellen would boost bets on a rate rise,
potentially pushing up yields at the short end of the curve.
Yellen will find it difficult to ignore improving underlying
economic conditions but may also emphasize longer-run policy
considerations, said Thierry Albert Wizman, global interest rates
and currencies strategist at Macquarie.
"If Janet Yellen sounds 'hawkish' at her Jackson Hole speech on
Friday, it will be in regard to the cumulative progress made by the
U.S. economy and the prospect that, as a result, policy rates will
rise, presumably soon," he said in a note. "Of course, Yellen could
combine this 'short-term' hawkishness with a discussion of the
'long run' and concede that because the 'natural real rate of
interest' (or R*) is low, rates will not rise that much in the
current cycle."
As investors have moved to the sidelines, it's made for
remarkably quiet trading in both bonds and equities.
"Markets continue to behave like they've eaten too much cake and
need to lie in the corner and do nothing in order to recover.
Inactivity rules," said Jim Reid, macro strategist at Deutsche
Bank, in a note.
Reid noted that the monthly 10-year Treasury range is its
narrowest in a decade (see chart below):
See:The Treasury market hasn't been this quiet in a decade
(http://www.marketwatch.com/story/the-treasury-market-hasnt-been-this-quiet-in-a-decade-2016-08-24)
(http://www.marketwatch.com/story/the-treasury-market-hasnt-been-this-quiet-in-a-decade-2016-08-24)Kansas
City Fed President Esther George on Thursday, in a pair of
interviews, said she thought it was time to raise interest rates
(http://www.marketwatch.com/story/feds-george-says-its-time-for-raising-interest-rates-2016-08-25)
(http://www.marketwatch.com/story/feds-george-says-its-time-for-raising-interest-rates-2016-08-25).
George, who is a voting member this year of the rate-setting
Federal Open Market Committee, cast the lone dissenting vote in
favor of a rate rise at the Fed's July meeting.
Dallas Fed President Robert Kaplan told CNBC that the case for a
rate increase was building, but offered no timetable for a move.
Kaplan isn't a voting member of the FOMC this year.
Yields saw renewed upward pressure after a relatively weak
auction of $28 billion in new 7-year notes .
The yield on the 2-year Treasury note rose 2 basis points to
0.786%, while the 30-year Treasury bond yield rose 2.6 basis points
to 2.269%.
(END) Dow Jones Newswires
August 25, 2016 16:03 ET (20:03 GMT)
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