Yield on 10-Year Treasury Note Falls to One-Month Low
27 March 2017 - 9:27PM
Dow Jones News
By Min Zeng
The yield on the benchmark 10-year U.S. Treasury note fell to a
one-month low Monday as investors lost appetite for riskier markets
after House Republicans pulled their health-care bill before a vote
in Congress last week.
The yield on the 10-year note closed at 2.373%, compared with
2.396% Friday. It was the yield's lowest close level since the end
of February. Yields fall as bond prices rise.
The GOP's failure to pass its health bill represents a big
setback for President Donald Trump's legislative agenda, raising
investor concerns over his ability to push through his fiscal
stimulus proposals, including lower taxes, large infrastructure
spending and less burdensome regulations.
"The key will be how much tax reform can actually get done,
that's the main issue for investors right now," said Jim Caron,
fixed-income portfolio manager at Morgan Stanley Investment
Management.
The 10-year Treasury yield sank as low as 2.348% earlier Monday,
before a bout of profit-taking pushed the yield off its low.
Analysts say the volatility reflects a tug of war between investors
sticking to their hopes over an eventual rollout of fiscal stimulus
and those who are becoming more skeptical after the failure of the
health-care legislation.
"While we certainly remain skeptical about Trump's ability to
deliver on many of his campaign promises in the current political
environment, we're reminded of the fact that four years...is a
lengthy period in which to reach some type of political
reconciliation," said Ian Lyngen, head of U.S. rates strategy at
BMO Capital Markets.
Since Mr. Trump's win in November, buying stocks and the dollar
while selling Treasurys--so-called Trump trades--have been the
popular way for investors to bet that fiscal stimulus via tax cuts
and large infrastructure spending would boost growth and
inflation.
These bets were pulled back across the board Monday. The Dow
Jones Industrial Average fell to its lowest level in more than a
month, though the loss was trimmed Monday afternoon. The ICE dollar
index, which measures the U.S. currency against a basket of other
currencies, fell to its lowest level since November.
These concerns stoked demand for assets considered havens.
Government bond yields in Germany and the U.K. also fell while gold
prices gained ground.
Monday's price gains extended the Treasury bond market's rebound
from a selloff earlier this month. The 10-year yield closed above
2.6% on March 13 and settled at the highest level since September
2014, as investors' expectations brought forward the Federal
Reserve's rate increase to March from June.
The yield sank after the Fed raised rates but signaled a slow
path of tightening, boosting the appeal of bonds. The pullback of
Trump trades over the past week heightened the bond market's
strength.
Wagers on higher bond yields, or shorts, have been retreating.
Unwinding shorts require investors and traders to return to the
bond market as a buyer, driving yields lower. When short-covering
trades intensify, that would send yields down sharply, analysts
say.
Hedge funds and money managers accumulated a net $74 billion
worth of shorts for the week ended March 21, via Treasury futures,
according to TD Securities. That was down from $89 billion during
the previous week. The net shorts reached $100.7 billion in early
January, the highest since 2008.
Some say declines in bond yields may not last long. They argue
that the failure to repeal the Affordable Care Act may strengthen
Mr. Trump's resolve to push through fiscal stimulus, and that
eventually a fiscal package is likely to roll out.
The 10-year yield has jumped about 1 percentage point from its
record-low close of 1.366% set last July, driven by an improving
global economic outlook, higher inflation, the prospect of
expansive U.S. fiscal policies and the Fed's plan to raise
short-term interest rates.
Write to Min Zeng at min.zeng@wsj.com
(END) Dow Jones Newswires
March 27, 2017 16:12 ET (20:12 GMT)
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