BOND REPORT: Treasury Yields Rise Amid Global Stock Rally

By Ellie Ismailidou, MarketWatch

Treasury prices fell Friday, driving yields higher, as investors sold U.S. government debt, which is considered a safe investment, in favor of riskier assets amid a global stock market rally.

While U.S. shares rose on the heels of Thursday's fifth straight session of gains for the Dow industrials, the Treasury market was under selling pressure overnight, which pushed yields to their highest level in nearly two weeks.

As the stock market rally lost some steam Friday morning, demand for Treasury bonds picked up.

"Recently Treasury yields have been tied to equity and risk-asset performance," said Wayne Schmidt, chief investment officer at Gradient Investments. This week's strong rebound in stocks (http://www.marketwatch.com/story/wall-street-stocks-set-to-run-out-of-fuel-after-an-upbeat-week-2015-10-09) and oil prices has led investors to sell bonds, despite the fact that U.S. economic data have recently come in weak, Schmidt added.

On Friday morning, the government said that the prices the U.S. paid for imported goods fell (http://www.marketwatch.com/story/us-import-prices-dip-slightly-in-september-2015-10-09)by a seasonally adjusted 0.1% in September, while the price of U.S.-made goods exported to other nations declined by 0.7% last month.

The news came after the minutes from the Federal Reserve's September meeting showed Thursday afternoon that Fed officials were reluctant to raise U.S. interest rates due to global risk concerns, particularly over China's economic slowdown.

After the close Thursday, Alcoa Inc. (AA) slashed its outlook for China's production of cars and heavy-duty trucks (http://www.marketwatch.com/story/alcoa-slashes-it-outlook-for-chinas-production-of-cars-heavy-duty-trucks-2015-10-08), fueling concerns over the growth of the world's second largest economy.

Another notable element in the minutes from the Federal Open Market Committee was the growing downside risks to low inflation, a Bank of America report noted on Friday.

"More than half of FOMC participants now see both headline and core personal consumption expenditures inflation risks weighted to the downside -- a reversal of the views in June," according to the report.

On balance, the yield on the benchmark 10-year Treasury note , inched 0.5 basis point higher to 2.113%, its highest level since Sept. 25, according to Tradeweb. One basis point is equal to one hundredth of a percentage point.

Meanwhile, the yield on the 30-year bond edged 0.4 basis point lower to 2.943% while the yield on the two-year Treasury note climbed 0.8 basis point to 0.645%.

Abroad, European government bonds were under selling pressure as stock markets rallied for a sixth straight session amid sharp advances in commodities.

The yield on the benchmark 10-year German bond known as the bund, gained 2.8 basis points to 0.613%.

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October 09, 2015 10:14 ET (14:14 GMT)

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