Two-Year Treasury Note Yield Rises
17 October 2017 - 11:27PM
Dow Jones News
By Gunjan Banerji
The yield on the two-year U.S. Treasury note breached its
highest level in almost a decade on Tuesday, reflecting investors'
confidence that the Federal Reserve will maintain a steady course
of interest-rate increases.
The yield on the two-year note rose for a second consecutive day
to 1.550%, the highest since October 2008, from 1.542% one day
prior. The yield on the 10-year note settled at 2.300%, compared
with 2.309% Monday. Yields rise as bond prices fall.
Investors sold short-dated U.S. government bonds and scooped up
longer-term Treasurys, narrowing the gap between the yields on
five-year and 30-year Treasurys to the smallest since 2007,
according to The Wall Street Journal's Market Data Group.
"It's rare to see this pattern," wrote Ian Lyngen, head of U.S.
rates strategy at BMO Capital Markets, in a note Tuesday, adding
that it reflects investors' differing expectations for short- and
long-term government bonds as they anticipate a hawkish Federal
Reserve and limited inflation.
Shorter-dated government bonds tend to be more sensitive to
expectations for Fed policy and have been weakening in anticipation
of higher interest rates in the near term and the prospect of new
Fed leadership that might be more aggressive about rate increases,
analysts said. Yields on longer-term bonds are more sensitive to
the outlook for economic growth and inflation.
President Donald Trump plans to meet Thursday with Fed
Chairwoman Janet Yellen, whose term expires in February, and has
narrowed his search to five final candidates.
U.S. stocks hit records this week and some investors may be
getting jittery over a potential pullback, turning to longer-dated
government bonds as a hedge for their equity exposure, said Zhiwei
Ren, a portfolio manager at Penn Mutual Asset Management.
Earlier, the 10-year yield had climbed as high as 2.327% after
data showed that U.S. import prices ticked up 0.7% in September
from a month earlier, the biggest month-over-month increase since
June 2016, the Labor Department said. Economists surveyed by The
Wall Street Journal expected a 0.6% increase in import prices.
The Federal Reserve looks at the import-price index to gauge how
quickly overall prices for products are rising. Treasury prices
tend to fall on strong inflation data because inflation is a threat
to long-term government bonds, chipping away at the purchasing
power of their fixed payments.
Today's data is "confirmation that the economy is doing well,
and we're seeing some increase in price pressures," Mr. Ren
said.
Write to Gunjan Banerji at Gunjan.Banerji@wsj.com
(END) Dow Jones Newswires
October 17, 2017 18:12 ET (22:12 GMT)
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