BOND REPORT: 10-year Treasury Yield Briefly Tops 3%
September 14 2018 - 12:08PM
Dow Jones News
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.