U.S. Government Bonds Regain Strength After Selloff -- Update
17 November 2017 - 9:57PM
Dow Jones News
By Sam Goldfarb
U.S. government bonds strengthened Friday, extending weekly
gains as investors took advantage of lower prices following a
modest selloff on Thursday.
The yield on the benchmark 10-year Treasury note settled at
2.352%, according to Tradeweb, compared with 2.361% Thursday and
2.397% last Friday.
Yields, which fall when bond prices rise, have declined this
week as investors sold riskier assets such as stocks and high-yield
corporate bonds and bought safer assets such as Treasurys.
Thursday marked a reversal of that trend, with yields climbing
along with stocks. But investors were back to favoring Treasurys on
Friday, keeping the 10-year yield firmly within the 2.3%-2.4% range
that it has held to for most of the past two months.
"Yesterday's selloff was mercurial in that it surprised a few
folks," and that has provided "an opportunity to buy," said Russ
Certo, managing director of rates at Brean Capital LLC.
Some analysts attributed to Thursday's selling in bonds in part
to the House passage of a far-reaching tax overhaul bill.
Many investors and analysts said that Treasury yields would rise
if such a bill became law, in part because it would boost the
federal budget deficit, requiring the government to issue more
bonds. A change in tax laws could potentially spur some economic
growth, causing investors to favor riskier assets. It could also
boost inflation, which is a main threat to government bonds because
it chips away at the purchasing power of their fixed returns.
However, the bill still faces obstacles. No Democrats voted for
the legislation in the House, and Republicans hold a narrow
majority in the Senate, which is considering a somewhat different
bill.
The debate over taxes is far from the only factor influencing
Treasurys. In recent weeks, yields on longer-term bonds have been
kept in check by relatively soft inflation data. The European
Central Bank has also signaled plans to extend monetary stimulus
deep into 2018, a policy that could continue to depress government
bond yields in Europe and ensure steady demand for U.S. bonds from
overseas investors seeking better returns than they can get at
home.
At the same time, Federal Reserve officials have sent strong
signals that the central bank will continue to raise interest rates
at a gradual pace, setting a floor for short-term Treasury
yields.
The Treasury Department has also indicated that, as the Fed buys
fewer bonds in the months ahead, it will meet its additional
borrowing needs by issuing more short-term debt than long-term
debt. That decision has helped shrink the gap between the two-year
Treasury yield and the 10-year yield to its lowest level in a
decade.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
November 17, 2017 16:42 ET (21:42 GMT)
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