BOND REPORT: Treasury Yields Slip As Geopolitical Tensions Rise; Trump Seen Favoring Powell For Fed Boss
19 October 2017 - 10:06PM
Dow Jones News
By Sunny Oh
Trump is expected to select a new head of the Federal Reserve by
Nov. 3
Treasury prices rose, pulling yields lower, on Thursday after
geopolitical tensions in Spain flared up. Meanwhile, reports
late-afternoon indicated that President Donald Trump was leaning
toward Fed. Gov. Jerome Powell as the next Federal Reserve chief
(http://www.marketwatch.com/story/trump-reportedly-leaning-toward-powell-for-fed-chairman-2017-10-19).
How are Treasurys doing?
The benchmark 10-year Treasury yield fell 2 basis points to
2.323%. The 2-year yield edged lower a basis point to 1.555%,
inching away from the 10-year high set on the previous session.
While, the 30-year yield dipped 2 basis points to 2.829%. When bond
prices rise, yields fall.
What's driving markets?
Early in the session, investors flocked to assets perceived as
safe including government paper, gold and the Japanese yen on the
back of intensifying tensions between Spain's central authorities
and the Catalan government as Spanish Prime Minister Mariano Rajoy
said he would suspend the region's autonomy if the Catalan
government stayed on its current track.
Investors are concerned a full-blown secession could endanger
the viability of the European Union, by encouraging other
separatist movements in Europe.
Treasury yields extended their decline after 3 p.m. Eastern,
when MarketWatch registers end-of-day levels for government bonds,
amid a report from Politico
(http://www.politico.com/story/2017/10/19/jerome-powell-trump-candidate-federal-reserve-chair-243957)
that Fed. Gov. Jerome Powell was the leading candidate to become
the next Fed boss when Chairwoman Janet Yellen's tenure ends next
February. Powell is seen as a continuity candidate and someone
whose views closely align with Yellen, a monetary dove. Investors
feel he would push for a less aggressive trajectory of rate
increases, which is also in line with the president's rhetoric.
See: Standoff in Spain intensifies, as government gears up to
strip autonomy from Catalonia
(http://www.marketwatch.com/story/standoff-in-spain-intensifies-as-government-gears-up-to-strip-autonomy-from-catalonia-2017-10-19)
What did market participants say?
"The contagion will be a much broader affair which may bring a
second swipe at the very foundations of the European Union," wrote
Mark Grant, chief market strategist for Hilltop Securities. "Brexit
is bad enough but a second front, which I have labeled
"Cat-a-pult," could bring the entire construct to its knees."
What else are on investors' radar?
How did other assets do?
The Spanish 10-year government bond yield briefly spiked to
intraday highs before returning close to break-even levels of
1.620%. Haven goldrose $7.00, or 0.6%, at $1,290 an ounce
(http://www.marketwatch.com/story/gold-perks-up-as-geopolitical-tensions-in-europe-resurface-2017-10-19).
The Japanese yen, also considered a haven, strengthened, with the
dollar buying Yen112.56, compared with Yen112.93 late Wednesday in
New York.
(END) Dow Jones Newswires
October 19, 2017 16:51 ET (20:51 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.