BOND REPORT: Treasury Yields Look Set To Fall A 4th Session In A Row

By Mark DeCambre, MarketWatch

U.S. government bond prices were on track to rise for a fourth straight session, driving yields lower, as fears about global trade conflicts and subsiding concerns about rising inflation and an overheated economy helped to support buying in Treasurys.

How are Treasurys performing?

The 10-year Treasury note yield edged down by 0.9 basis point to 2.806%, according to FactSet, while the 30-year bond rate shed 1.3 basis points to 3.045%. The two-year note yield ticked 0.2 basis point lower at 2.258%.

All three maturities have seen yields fall, and prices rise, for three consecutive sessions

Bond prices and yields move in the opposite direction.

What's driving trading in government paper?

Persistent concerns about a global trade war have elevated haven buying in Treasurys, with those worries heightened after President Donald Trump said Wednesday his administration would seek to trim the U.S.'s trade deficit with China by $100 billion, a day after saying he wants to impose up to $60 billion in tariffs on Chinese goods (http://www.marketwatch.com/story/trump-reportedly-eyes-60-billion-in-tariffs-on-china-goods-2018-03-13). Wall Street jitters that a retaliation by Beijing, the world's second-largest economy, and other countries, could derail the U.S.'s economic expansion now in its 10th year.

On Wednesday, German Chancellor Angela Merkel's said she was pessimistic over the eurozone's ability to negotiate an exemption from the steel and aluminum import tariffs.

Meanwhile, inflation anxieties have been quelled, at least for the moment, with recent reports on rising prices and Wednesday's retail-sales report offering few signs that the economy is running hot enough to merit more than the three rate increases from the Federal Reserve than the market is pricing in.

In fact, consumer buying has been trending lower. Retail sales fell 0.1% in February (http://www.marketwatch.com/story/us-retail-sales-fall-for-third-month-in-a-row-2018-03-14)compared with a 0.3% forecast from economists polled by MarketWatch. That marks the third decline a row, a record last matched in 2012.

Rising Inflation is bearish for bonds because climbing prices can erode the fixed value of a bond.

Market participants also digested news that Trump was replacing his outgoing chief economic adviser, Gary Cohn, a key engineer to many of the president's fiscal stimulus measures, with CNBC's Larry Kudlow (http://www.marketwatch.com/story/lawrence-kudlow-is-fan-and-critic-of-trumps-economic-positions-2018-03-14) as National Economic Council director. Kudlow isn't supportive of broad tariffs on international allies.

What data are ahead?

What are strategists saying?

"This weakness [in consumer spending] rather goes against the prevailing narrative of multiple rate rises this year from the Federal Reserve. If last week's weaker than expected wages data pushed back the thinking on the prospect of four rate rises this year, then yesterday's retail sales data rather calls into question the possibility of three. This was reflected in US bond yields slipping back, with the 10 year yield slipping as low as 2.8% at one point," wrote Michael Hewson, chief market analyst at CMC Markets UK, referring to last Friday's monthly jobs report for February (http://www.marketwatch.com/story/us-adds-313000-jobs-in-february-in-biggest-gain-in-a-year-and-a-half-2018-03-09) that revealed a muted level of wage growth, which also helped to calm inflation worries.

What other assets are in focus?

The German 10-year government bond yield fell to 0.578% from 0.592% late Wednesday. German bonds, also known as bunds, are often viewed as a proxy for the health of the eurozone.

Meanwhile, the Dow Jones Industrial Average and the S&P 500 index aimed to halt a three-session skid (http://www.marketwatch.com/story/dow-gathers-strength-for-a-rally-after-3-day-skid-2018-03-15), suggesting that investors may be inclined to dip back into buying assets perceived as risky, like stocks.

(END) Dow Jones Newswires

March 15, 2018 07:56 ET (11:56 GMT)

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