BOND REPORT: Treasurys Rally As Stocks Sink After Weak Home-builder Confidence Reading
19 November 2018 - 9:06PM
Dow Jones News
By Sunny Oh
The 2-year note yield slips to a nine-week low
Treasury prices rose, pushing yields lower, on Monday as stocks
stumbled following the release of a home-builder confidence gauge
that underlined concerns about the housing sector.
The 10-year Treasury note yield was down a basis point to
3.059%, its lowest since Oct. 2, after falling 11.5 basis points
last week. The 2-year note yield gave up 2.7 basis points to
2.785%, its lowest since Sep. 14. The 30-year bond yield fell a
basis point to 3.317%, its lowest since Oct. 26. Bond prices move
in the opposite direction of yields.
Action may be subdued in the holiday-shortened week. The
Securities Industry and Financial Markets Association says the bond
market will be closed on Thursday for Thanksgiving, and recommends
an early close on Friday.
Stocks fell and bonds rallied after the National Association of
Home Builder's confidence index fell eight points to 60 in
November, its biggest drop since February 2014. The industry has
been undercut by higher mortgage rates, in turn, driven by the
general climb in Treasury yields this year as the Federal Reserve
continues on in its path to normalize rates. Sluggishness in
rate-sensitive industries such as home construction could feed
fears that higher borrowing costs are starting to take a toll on
economic growth, analysts said.
Haven assets like government bonds were buoyed by the selloff in
assets perceived as risky, including stocks. The S&P 500 and
the Dow Jones Industrial Average were both down nearly 2%
(http://www.marketwatch.com/story/dow-poised-to-kick-off-holiday-shortened-week-lower-2018-11-19).
"The forces that threaten to limit housing market activity show
no signs of abating," said Thomas Simons, senior money market
economist for Jefferies, in a research note.
See: Home builder confidence tumbles the most since 2014 as
housing headwinds catch up
(http://www.marketwatch.com/story/home-builder-confidence-tumbles-the-most-since-2014-as-housing-headwinds-catch-up-2018-11-19)
On the Fed front, New York Fed President John Williams said he
sees the central bank continuing to raise rates, adding that he
wanted to lengthen the U.S.'s economic expansion. His remarks come
as expectations for rate increases have come down after traders
interpreted recent speeches by senior Fed officials like Vice
Chairman Richard Clarida as dovish.
Read: Markets think Powell 'blinked' in Dallas
(http://www.marketwatch.com/story/markets-think-powell-blinked-in-dallas-2018-11-19)
Investors will also focus on geopolitical tensions, heaping
renewed attention on U.S.-China trade tensions ahead of a meeting
between President Donald Trump and China's leader Xi Jinping in
late November. Vice President Mike Pence struck a strident tone
against Beijing in the Asia-Pacific Economic Cooperation summit
meeting over the weekend
(http://www.marketwatch.com/story/apec-summit-ends-in-disarray-as-us-china-trade-tensions-dominate-2018-11-18),
saying Washington wouldn't lift pressure on China unless it
"changes its ways."
Pence slammed China's "Belt and Road Initiative," a world-wide
infrastructure initiative financed by China, saying it would saddle
partner countries with excessive debt.
"The bottom line is are we willing to sacrifice economic growth
via higher taxes (aka tariffs) on China in order to achieve the
goals of the administration if it doesn't get everything it wants?
It seems for now that will be the case," wrote Peter Boockvar,
chief market analyst at the Bleakley Advisory Group.
The Treasury International Capitol report on Friday showed
China's holdings of U.S. Treasurys fell $13.7 billion, its fourth
straight monthly decline. China's stock of U.S. government paper
often reflects interventions into foreign-exchange markets to prop
up the yuan's value. China's currency is near the key psychological
level of 7 yuan versus the greenback
(http://www.marketwatch.com/story/heres-why-investors-shouldnt-take-their-eyes-off-chinas-yuan-2018-10-17),
with the dollar now buying 6.9397 yuan.
(END) Dow Jones Newswires
November 19, 2018 15:51 ET (20:51 GMT)
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