BOND REPORT: 10-year Treasury Yield Falls By The Most In 6 Weeks On Government Shutdown Fears
23 August 2017 - 9:35PM
Dow Jones News
By Sunny Oh
Trump threatened to shut down the government to pay for the
border wall between Mexico and the U.S. at a rally in Phoenix
Treasurys saw buying, dragging yields lower, on Wednesday after
President Donald Trump threatened to shut down the government if he
didn't get funding for a U.S.-Mexico border wall.
The comments made at a pro-Trump rally in Phoenix represent a
flashpoint for investors sensitive to the possibility of temporary
closure of the Federal government amid a looming debt-ceiling
deadline.
The benchmark 10-year Treasury yield shed 4.4 basis points to
2.171%, the largest single-day yield decline since July 18. The
2-year Treasury yield ticked lower 1.6 basis point to 1.309%, while
the 30-year Treasury bond's yield lost 4 basis points to 2.748%.
Bond prices move in the opposite direction of yields.
Trump said he was willing to "close down" the government to pay
for the border wall
(http://www.marketwatch.com/story/trump-threatens-shutdown-over-border-wall-funding-predicts-end-of-nafta-2017-08-22)separating
U.S. and Mexico at the late-Tuesday rally. He also said he could
end the North American Free Trade Agreement, which he said was
responsible for the loss of manufacturing jobs in the U.S.
"In the short term, safe haven buying has pushed [Treasury
prices] higher. We had Trump talking about two things: the [North
American Free Trade Agreement] agreement and letting us hit the
debt ceiling and shut down the government if [Congress] doesn't
give him funds for the border wall. This caused some concern in the
marketplace," said Larry Milstein, managing director of Treasurys
trading at R.W. Pressprich & Co.
See: Trump 'shutdown' threat rattles stock market
(http://www.marketwatch.com/story/trump-shutdown-threat-rattles-stock-market-2017-08-23)
Assets perceived as havens other than Treasurys such as the yen
(http://www.marketwatch.com/story/dollar-wanes-against-euro-yen-as-us-tax-reform-doubts-resurface-2017-08-23)
and gold
(http://www.marketwatch.com/story/gold-higher-as-dollar-nicked-by-economic-agenda-uncertainty-2017-08-23)
attracted bidders following his contentious statements. Gold for
December deliveryrose $3.70, or 0.3%, to settle at $1,294.70 an
ounce
(http://www.marketwatch.com/story/gold-higher-as-dollar-nicked-by-economic-agenda-uncertainty-2017-08-23).
Against the yen, the greenback bought Yen109.03, compared with
Yen109.57 late Tuesday in New York.
Although Trump has made similar pronouncements before, it
revealed the lack of clarity surrounding the new administration's
relationship with congressional leaders as the calendar approaches
the deadline for raising the debt ceiling in autumn. His remarks
came on the back of promises made by Sen. Majority Leader Mitch
McConnell, R-Ky.,
(http://www.marketwatch.com/story/sen-mcconnell-says-theres-zero-chance-us-wont-raise-debt-ceiling-2017-08-21)
and Treasury Secretary Steven Mnuchin that the U.S. would pass a
hike to the debt ceiling without trouble.
As geopolitical drama continues to overshadow U.S. financial
markets, traders monitored economic data. Manufacturing purchasing
managers' indexes, or PMIs, from IHS Markit showed a reading of
52.3, a two-month low,
(http://www.marketwatch.com/story/manufacturing-service-flash-pmi-readings-split-direction-in-august-2017-08-23)
in contrast with jump in services PMI to a 28-month high of 56.9.
Any reading above 50 indicates expansion. A reading of new home
sales, meanwhile, was down to a 7-month low of 9.4%
(http://www.marketwatch.com/story/new-home-sales-skid-to-7-month-low-in-july-2017-08-23),
slowing to an annual 571,000 pace from the 608,000 median forecast
from economist surveyed by MarketWatch.
And Dallas Fed President Robert Kaplan, a voting member,
reaffirmed his stance that he would wait for further data before
deciding on a rate hike this year, although he conceded that
tightest labor market in 16 years
(http://www.marketwatch.com/story/us-gains-209000-jobs-in-july-unemployment-retouches-16-year-low-of-43-2017-08-04)
could warrant a shift away from monetary accommodation.
Meanwhile, European Central Bank President Mario Draghi spoke at
Lindau, Germany
(http://www.marketwatch.com/story/european-stocks-tilt-lower-even-as-factory-activity-stays-strong-2017-08-23)on
Wednesday before the much-awaited conference at Jackson Hole, Wyo.
He offered few clues on the outlook for the ECB's monetary policy,
leaving the euro unchanged.
Analysts said his comments revealed moderation after the euro
surged against the dollar and yields rose following comments that
were read as hawkish at a speech in Portugal in late June, when
Draghi said he saw signs of reflation in the eurozone, leading the
euro higher as currency traders anticipated an end to the ECB's
EUR60 million ($70.8 billion) monthly asset-purchasing program.
But some economists say the focus on the currency's swings
distract investors from arguably a more important piece in the
central bank's calculus--the rebound in growth across the eurozone.
The economic bloc grew at a healthy clip of 2.5% in the second
quarter
(http://www.marketwatch.com/story/eurozone-recovery-aided-by-dutch-surge-2017-08-16),
closely matching the 2.6% seen in the U.S
(http://www.marketwatch.com/story/us-gdp-accelerates-to-26-in-second-quarter-2017-07-28).
"For the ECB the key thing is whether the recovery is continuing
to broaden out, not the precise level of the euro," said David
Owen, chief European financial economist at Jefferies.
The yield for the 10-year German bond, also known as the bund,
slipped 2 basis points lower.
(END) Dow Jones Newswires
August 23, 2017 16:20 ET (20:20 GMT)
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