By Mark DeCambre, MarketWatch , Sunny Oh
Treasury yields pulled back sharply Thursday morning, with the
10-year note rate retreating, after hitting its highest level in
about three weeks.
That move came after the Federal Reserve lifted short-term rates
a quarter-point to a range of 1.50% to 1.75%, as expected.
However, some investors sought the perceived safety of
government paper as President Donald Trump prepared to unveil
wide-ranging tariffs on Chinese imports later Thursday, with China
set to respond with its own countermeasures.
The reemergence of trade tensions between global powerhouses
rattled investors, pushing stocks down and bond prices up, market
participants said.
Meanwhile, investors were digesting signals from the Fed that it
was inclined to maintain the pace of two additional rate increases
for the remainder of 2018, while inflation remains tame even as the
labor market tightens.
How are Treasurys performing?
The yield on the 10-year Treasury note , sank by 8.1 basis
points to 2.826%, after hitting its highest level since Feb. 27
late Wednesday in New York. The 30-year Treasury bond yield
retreated by 7.7 basis points to 3.051%.
The 2-year note yield , the most sensitive to expectations for
monetary policy, fell 2.9 basis points to 2.287%.
The spread between the 2-year note and the 10-year, a
differential bond traders view as a gauge of the long-term economic
outlook, was at 53.9 basis points.
Bond prices move in the opposite direction of yields.
What's driving markets?
The White House is set to unveil levies on Chinese imports,
reigniting concerns that the U.S. is on the verge of entering a
trade war, which could be disruptive, at least in the short term,
to broader markets.
The Trump administration plans to release on Thursday
(http://www.marketwatch.com/story/trump-set-to-propose-new-trade-restraints-tariffs-against-china-on-thursday-2018-03-20)
a package of proposed punitive measures aimed at China that include
tariffs on imports worth at least $30 billion.
See: U.S. soybeans would be China's biggest weapon in a trade
war
(http://www.marketwatch.com/story/us-soybeans-would-be-chinas-biggest-weapon-in-trade-war-2018-03-17)
The U.S. stock market traded lower across the board, with the
Dow Jones Industrial Average , Nasdaq Composite Index and the
S&P 500 index were all down by around 1%, as investors steered
away from so-called risk assets like stocks.
Congressional leaders reached an agreement
(http://www.marketwatch.com/story/congressional-leaders-agree-on-13-trillion-spending-bill-to-avert-shutdown-2018-03-21)
late Wednesday on a spending bill that would fund the U.S.
government until October. Lawmakers now have two days to consider
and pass the 2,232-page bill before the current funding expires at
12:01 a.m. Saturday.
What data are ahead?
Weekly jobless claims rose by 3,000 to 229,000
(http://www.marketwatch.com/story/jobless-claims-edge-up-3000-to-229000-2018-01-18)for
the seven days ending March 17, near a 45-year low, with economists
polled by MarketWatch expecting 225,000 claims.
What are strategists saying?
"There are two risks with a trade war: one, it slows growth,
second, it raises inflation. That may eventually be bad for bonds,
but that's a secondary consideration," said Kathy Jones, chief
fixed income strategist at Schwab Center for Financial Research.
But for now, it would produce haven-related buying, she said.
"Anytime you play with trade and making trade tougher for other
countries to participate, I think that's a short-term negative for
equity markets and good for bonds," said Tom di Galoma, managing
director for Treasurys trading at Seaport Global Securities.
As for the Fed move, di Galoma said he read the Fed and Powell's
policy update as relatively dovish, or less aggressive about
raising rates than earlier expectations.
"I think there was a general perception, say a month a go, that
all of the Fed governors were all taking four rate hikes in 2018,"
he said.
He was referring to the Fed's guidance, which suggests the
Federal Open Market Committee is still set to lift benchmark rates
two additional times this year--less aggressive than some
strategists and traders had forecast.
What are other assets doing?
U.K. 10-year government bond yields , known as gilts, were down
at 1.454% on Thursday, compared with 1.528% in the previous
session.
The Bank of England held rates steady, but two members of its
monetary policymaking committee voted in favor of a hike in March,
setting the stage for a rate increase in May. Figures released
Wednesday showed U.K. wages grew by 2.6% in January
(http://www.marketwatch.com/story/uk-wage-growth-accelerates-in-january-2018-03-21),
adding to the case for tightening monetary policy.
(END) Dow Jones Newswires
March 22, 2018 10:55 ET (14:55 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.