By Joseph Adinolfi, MarketWatch
Spread between German and French 10-year bonds
Treasury yields finished marginally higher Tuesday, but erased
much of their early gains, after a new poll showed far-right
candidate Marine Le Pen's lead's widening in the coming French
presidential election.
The poll, which was conducted by communications firm Elabe for
French TV station BFMTV and magazine L'Express, showed Le Pen's
lead increasing by as much as 2 percentage points from a prior poll
published on Feb. 8.
The poll affected markets from bonds, to stocks, to metals
(http://www.marketwatch.com/story/marine-le-pens-lead-widens-in-latest-electoral-poll-2017-02-21)
by triggering a pick up in demand for assets perceived as havens,
said Tom di Galoma, managing director for Treasury trading at
Seaport Global.
"Marine Le Pen is an anti-immigration, right-wing candidate who
is gaining momentum to become the next president of France," di
Galoma said. "The poll seems to be driving Treasury prices
higher."
Perhaps equally as troubling were signs that Emmanuel Macron,
the candidate who's seen as having the better chance of defeating
Le Pen in the second round of voting, fell behind conservative
candidate François Fillon, said Peter Chatwell, head of
Europeanrates strategy at Mizuho International PLC.
Investors fear that far-right populist candidates emerge
victorious, or at least make inroads, during a series of elections
in Europe. Ultimately, this could lead to several countries
abandoning Europe's trade bloc, which could destabilize the
eurozone and its shared currency, the euro.
The yield on the 10-year Treasury note rose 0.4 basis points to
2.429%, while the yield on the two-year Treasury note rose 0.9
basis point to 1.207%. The yield on the 30-year bond rose 0.7 basis
point to 3.037%. Bond yields rise as prices fall.
Treasury yields had climbed early in the U.S. trading day
following hawkish comments from Philadelphia Federal Reserve Bank
President Patrick Harker, who said over the weekend that he would
likely support raising interest rates at the central bank's
upcoming March meeting if he sees more evidence that economic
growth and inflation are accelerating.
The spread between the German and French 10-year bond rose to
its widest level since November 2012, according to Tradeweb
data.
The yield on the 10-year German bund rose half a basis point to
0.303%, while the yield on the 10-year French bond rose 4.2 basis
points to 1.091%, according to Tradeweb.
Meanwhile, the yield on the Greek 10-year shed 40.9 basis points
to 7.343%, its largest one-day drop since November, following
reports that eurozone finance ministers have agreed to negotiations
with Athens over the terms of the bailout agreement.
Yields rose early Tuesday London Time after the eurozone
composite purchasing managers index for February came in at its
highest level since April 2011, a sign that economic growth is
picking up, according to a research note from Capital
Economics.
Over the past few weeks, Federal Reserve Chairwoman Janet Yellen
and a host of other Fed officials have intimated that an
interest-rate increase at the policy-setting Federal Open Market
Committee's meeting on March 14-15 remains on the table. Their
remarks contrasted with the perceived dovish tone from the central
bank's most recent monetary policy outlook, released in
January.
However, Fed-funds futures, which are used by investors to place
bets on the future path of interest rates, are presently pricing in
a less than 20% chance of a March hike, according to data provided
by the CME Group.
Cleveland Fed President Loretta Mester also struck a hawkish
tone, meaning she endorsed a path of raising rates sooner than
later, in remarks delivered over the weekend. But her words carried
less weight because she's not a voting member of the central bank's
interest-rate setting committee this year.
But the increase in yields over the past week suggests that
"people are starting to believe that March is back on the table,"
said Kevin Nicholson, chief market strategists at RiverFront
Investment Group.
On the policy front, recent reports suggest that President
Donald Trump's efforts to pass corporate tax reform have met with
heavy opposition from retail lobbying groups and some Republican
senators,
(https://www.wsj.com/articles/as-tax-debate-heats-up-lawmakers-struggle-to-think-of-a-plan-b-1487327400)
according to a Friday report in The Wall Street Journal.
Treasury yields shot higher after Trump's unexpected electoral
victory partly due to the expectation that his economic policies
would cause inflation to accelerate. Typically, when investors
expect prices to rise during the lifespan of a bond, they demand a
higher yield to offset them.
An auction of $26 billion in two-year Treasury notes received
stronger-than-expected demand, with investors paying a premium for
the newly issued notes.
(http://www.marketwatch.com/story/two-year-treasury-auction-sees-strong-demand-2017-02-21)
(END) Dow Jones Newswires
February 21, 2017 17:33 ET (22:33 GMT)
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