U.S. Government Bonds Strengthen as Oil Drops
April 27 2017 - 04:36PM
Dow Jones News
By Sam Goldfarb
Treasurys strengthened Thursday, pushing the yield on the
10-year note back below 2.3% as a drop in oil prices helped buoy
demand from investors.
The yield on the benchmark 10-year Treasury note settled at
2.298%, compared with 2.312% Wednesday. Yields fall when bond
prices rise.
After a quiet overnight session, bonds staged a modest rally in
the morning, responding in part to the decline in oil prices, which
fell to a one-month low amid increasing concerns of an oversupply
in petroleum products, analysts and traders said.
Lower oil prices could help keep a lid on inflation, which is a
main threat to longer-term government bonds as it erodes their
fixed returns over time.
Bonds also gained support from continuing skepticism among
investors over the prospects for fiscal stimulus, as well as
month-end demand as some investors adjusted their portfolios to
match changing indexes, analysts said.
Though the move in yields was modest, appetite for Treasurys was
evident in an auction of seven-year notes, which were sold at an
unexpectedly low yield amid signs of intense interest from foreign
buyers.
Earlier in the day, the European Central Bank, at the conclusion
of its latest policy meeting, said its main interest rate charged
on regular loans, would remain at zero while the rate on overnight
deposits would stay at a minus 0.4%. It also maintained its
bond-buying program at EUR60 billion a month.
The ECB's asset purchases have been one factor that have
depressed bond yields over the past two years, making bonds more
scarce and sending European investors into the U.S. market in
search of higher-yielding debt. The ECB is expected to preserve its
bond-buying program through the end of the year before gradually
tapering its purchases next year.
Treasury yields had also fallen Wednesday after administration
officials formally announced their plan to cut taxes for
individuals and businesses. Though the promise of tax cuts helped
buoy yields after last November's election, many investors and
analysts found the administration's plan unconvincing, given its
lack of technical details or clear path to being passed by
Congress.
Expansionary fiscal policies, such as tax cuts, could
potentially boost economic growth, leading to higher inflation and
interest rates that would diminish the value of outstanding
government debt.
The bond market registered a "pretty muted response to the Trump
administration's outline tax proposal," which "still needs a lot of
details filled in," said Timothy High, senior U.S. interest-rate
strategist at BNP Paribas.
After a period of volatility, the yield on the 10-year Treasury
note now stands at the bottom end of a range of 2.3% to 2.6%, which
has held for much of the year. The yield broke out of that range
last week, falling to a month low of 2.177%. But it rebounded this
week, partly due to the results of last Sunday's first-round
presidential vote in France, which established the centrist,
pro-European Union candidate Emmanuel Macron as the clear favorite
heading into the final round of voting on May 7.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
April 27, 2017 16:21 ET (20:21 GMT)
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