BOND REPORT: Treasury Prices Finish Higher As Equities Get Hit

By Ellie Ismailidou, MarketWatch

Treasury prices finished higher Wednesday for a straight second trading day, pushing yields lower, as disappointing earnings releases that weighed on stocks increased demand for safer assets, like Treasury bonds.

After quarterly reports from Apple Inc. (AAPL) and Microsoft Corp. (MSFT) disappointed, U.S. stocks extended losses on Wednesday (http://www.marketwatch.com/story/us-stocks-on-track-to-open-lower-as-drops-by-apple-microsoft-weigh-2015-07-22)and the Treasury market got a boost.

The yield on the 10-year Treasury declined two basis points to 2.322%, while the yield on the two-year rose two basis points to 0.706%. Meanwhile, the yield on the 30-year bond fell 3.7 basis points to 3.043%.

Treasury yields fall when prices rise and vice versa.

Positive news from the U.S. housing market, where home prices rose in May (http://www.marketwatch.com/story/home-prices-rise-04-in-may-fhfa-2015-07-22-991425) and existing-home sales rose in June at the fastest pace since 2007 (http://www.marketwatch.com/story/existing-home-sales-rise-32-to-549-million-rate-in-june-fastest-since-2007-2015-07-22), led to some Treasury selling on Wednesday morning, but overall did not manage to reverse the bullish trend fueled by the global risk-off sentiment.

Because the economic calendar is lighter than usual this week, the influence of earnings and risk-asset performance has been greater than what typically occurs, analysts said.

Between now and the next Federal Reserve meeting scheduled for July 29, "there isn't a whole lot of new data for the Fed to review," Kevin Giddis, head of fixed income capital markets at Raymond James, said in a note.

While Treasury investors are in a wait-and-see mode, in the rest of the world "it seems we are coming to the brink of the loose monetary policy," Brenda Kelly, head analyst at London Capital Group, said in a note.

Bank of Japan Governor Haruhiko Kuroda warned on Wednesday that he expected Japan's inflation rate to accelerate and hit the central bank's 2% target by the first half of 2016, while the Bank of England is also on inflation-watch and could move to monetary tightening as early as August.

These events are "putting the kibosh on risk assets", Kelly said, while falling commodity prices are putting pressures on the corporate bond market. (http://www.marketwatch.com/story/falling-oil-prices-add-to-high-yield-bond-markets-long-list-of-woes-2015-07-22)

Meanwhile in the eurozone, sovereign bond yields were mostly lower ahead of a crucial Greek parliament vote on austerity reforms (http://www.marketwatch.com/story/greek-austerity-reform-vote-goes-to-assembly-after-passing-at-special-committees-2015-07-22) demanded by the country's creditors. Formal negotiations on a third bailout program for Greece can only start once the measures have legislative approval. Conversely, failure to gain a majority vote could indicate Autumn elections.

As European equities also moved lower (https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0CCAQqQIwAGoVChMIzZKHzOzuxgIVRjI-Ch3hGwRE&url=http%3A%2F%2Fwww.marketwatch.com%2Fstory%2Feuropean-stocks-drop-with-tech-shares-under-pressure-2015-07-22&ei=LJuvVc3MFsbk-AHht5CgBA&usg=AFQjCNEVkqDg6J_rjmaEbgaoFK16wPa14w&sig2=U8KBzmFs5ZoIsVheoVJ76g&bvm=bv.98197061,d.cWw), the yield on the benchmark German 10-year bund declined 2.8 basis point to 0.699%.

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