By Min Zeng
Treasury bonds ended a bruising September on a down note, though
prices were little changed for the third quarter.
Bond prices pulled back Tuesday due to investment adjustments by
some investors at the end of the month and the quarter. The selling
offset disappointing U.S. consumer sentiment data that had sent
bond prices rising earlier in the session.
In late-afternoon trading, the benchmark 10-year note was 5/32
lower, yielding 2.509%. Yields rise as prices fall.
The yield climbed by about 0.16 percentage points in September,
the most on a monthly basis since December 2013.
For the quarter, though, the yield was little changed--about
0.01 percentage point lower compared to the end of June. The yield
was 3% at the start of the year.
Zach Pandl, portfolio manager and strategist for Columbia
Management, which has $363 billion in assets under management, said
he expects Treasury yields to rise in coming months and the 10-year
note's yield could rise to 3% or higher by the end of the year.
"I am expecting the U.S. economy to grow at a stronger pace and
that policymakers in the eurozone will turn the economy and low
inflation around," pushing bond yields higher, said Mr. Pandl. "It
may be a U-shape rise in yield instead of a V-shape."
Bond investors will zero in on upcoming Friday's non-farm jobs
report, one of the key data points in influencing the Federal
Reserve's interest rate policy outlook. Economists expect the
economy to have added 215,000 new jobs this month, compared with
142,000 in August.
Traders say a strong report could send bond yields higher as it
could raise concerns that the Fed may raise its official interest
rates sooner than investors expect.
Higher interest rates make newly minted bonds more attractive to
buy, diluting the value of existing bonds.
Concerns about the Fed's interest rate outlook pushed the
10-year Treasury yield above 2.65% earlier this month to a
two-month high.
Volatility has risen this month as bond investors are grappling
with many cross-currents affecting bond prices.
Geopolitical risks in Ukraine and the Middle East and concerns
about the economic growth in the eurozone and China bolstered
demand for safe-haven bonds.
On the other hand, the U.S. economy has gained traction and the
Fed is expected to start raising interest rates sometime next year
for the first time since 2006.
Bond investors also keep a close eye on the fallout from Bill
Gross's abrupt departure from Pacific Investment Management Co.
Mr. Gross is one of the biggest names in fixed-income investing
and the $222 billion Pimco Total Return Fund that he managed is the
world's largest bond fund by assets. The fund held 41% of its
investments in U.S. government-related holdings as of the end of
August, a proxy for Treasury bonds.
On Friday, bond prices pulled back over concerns that Mr.
Gross's departure could lead to large client redemptions from the
fund and force the fund to sell its bond holdings to meet the
outflows.
COUPON ISSUE PRICE CHANGE YIELD CHANGE
1/2% 2-year 99 27/32 dn 1/32 0.587% +0.8BP
7/8% 3-year 99 27/32 dn 1/32 1.056% +0.5BP
1 5/8% 5-year 99 27/32 dn 1/32 1.781% +0.2BP
2% 7-year 99 12/32 dn 1/32 2.220% +0.8BP
2 3/8% 10-year 98 27/32 dn 5/32 2.509% +1.0BP
3 1/8% 30-year 98 15/32 dn 14/32 3.204% +2.9BP
2-10-Yr Yield Spread: +192.2BPS Vs +191.2BPS
Source: Tradeweb/WSJ Market Data Group
Write to Min Zeng at min.zeng@wsj.com
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