BOND REPORT: 10-year Treasury Yield Pulls Back From 4-year High As Investors Dip Toe Into Bond Market
22 February 2018 - 10:15PM
Dow Jones News
By Victor Reklaitis, MarketWatch , Sunny Oh
Investors remain focused on Fed minutes
Treasury prices rose, pulling yields higher Thursday after
bond-buyers stepped back into the market to arrest the previous
day's selloff that came after Federal Reserve minutes signaled more
interest-rate hikes in the offing.
See:Fed minutes say stronger outlook increases the chance for
more rate hikes
(http://www.marketwatch.com/story/fed-minutes-stronger-outlook-increases-the-chance-of-more-rate-hikes-2018-02-21)
What are key benchmarks doing?
The yield on the 10-year Treasury note was down 2.6 basis points
to 2.917%, after notching a fresh four-year high above 2.94% on
Wednesday
(http://www.marketwatch.com/story/2-year-treasury-yields-extend-climb-ahead-of-fed-meeting-minutes-2018-02-21).
The two-year note yield dipped by 2 basis points to 2.250%, while
the rate for the 30-year bond edged lower by 1.8 basis pints to
3.205%.
Bond prices and yields move in the opposite direction.
What's driving markets?
The bond market took a breather from Wednesday's selloff as
investors said the market had bottomed out. Higher yields can be
appetizing to investors who want to buy bonds at cheaper
prices.
Investors had dumped government paper Wednesday after Fed
minutes from January's gathering suggested the central bank was
willing to raise rates beyond the three times it had projected this
year in its dot plot, an aggregate of its forecasts. Tighter
monetary policy tends to be bearish for bonds as older debt has to
be discounted to match the higher yields of fresh issuance.
See: Fed minutes: Stronger outlook increases the chance for more
rate hikes
(http://www.marketwatch.com/story/fed-minutes-stronger-outlook-increases-the-chance-of-more-rate-hikes-2018-02-21)
After Treasurys rebounded, traders said hedge funds shorting
Treasurys may have been forced to "cover" their positions by buying
back bonds in order to avoid losses.
Analysts also said investors had managed to digest the $250
billion of fresh issuance without much trouble. The Treasury
Department has had to crank up the size of its debt auctions to
replenish its cash balances. Growing budget deficits contributed to
by tax cuts and an increase to spending caps have put additional
pressure on bond-buyers.
What are strategists saying?
"Short positions in Treasury futures are at extreme levels and
could pose technical headwinds to higher yields in the near term,
with short covering potentially providing a bid for bonds," said
Bill Northey, chief investment officer at U.S. Bank Private Client
Group, in a note.
"And just like that, the Treasury wraps up their record-breaking
week of issuance ... Despite massive size, all were relatively
routine affairs and the market appears to have handled them well,"
said Thomas Simons, senior money market economist for
Jefferies.
What was on investors' radar?
Atlanta Fed President Raphael Bostic said the central bank was
raising rates in an improving economic environment, giving relief
to the financial sector, according to Bloomberg News
(https://www.bloomberg.com/news/articles/2018-02-22/fed-s-bostic-says-things-continue-to-look-up-for-u-s-economy-jdyv56g5).
Earlier Thursday, the Fed's vice chairman for supervision,
Randall Quarles, said in Tokyo that recent low inflation readings
are not "a great concern
(http://www.marketwatch.com/story/feds-quarles-says-low-us-inflation-readings-are-not-a-great-concern-2018-02-22),"
and the economy is "performing very well."
The number of people applying for employment benefits fell by
7,000 to 222,000 claims
(http://www.marketwatch.com/story/us-jobless-claims-drop-7000-to-222000-and-fall-back-to-45-year-low-2018-02-22),
below the 230,000 expected by economists polled by MarketWatch.
What are other assets doing?
After Germany's business climate index fell in February
(http://www.marketwatch.com/story/german-business-euphoria-fades-in-february-ifo-2018-02-22)
from the previous month's record high, the German 10-year
government bond yield fell 1.6 basis points to 0.704%, according to
Tradeweb data.
(END) Dow Jones Newswires
February 22, 2018 17:00 ET (22:00 GMT)
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