BOND REPORT: Treasury Yields Slip On The Day, But Halt Weekly Streak Of Declines
May 26 2017 - 4:24PM
Dow Jones News
By Sunny Oh
10-year Treasury yield continues to linger below 2.30%
Treasury yields retreated on Friday as a batch of economic
reports came in mixed ahead of the Memorial Day holiday, but a
slight yield gain on the week was enough to halt a weekly string of
declines for government bonds at two.
The yield for the 2-year Treasury note was unchanged at 1.298%,
but rose 1.9 basis points over the week to post the largest weekly
yield gain since May 5. The 10-year note fell 0.5 basis point to
2.248%, while the 30-year bond, or the long bond, lost 0.9 basis
points to 2.913%.
Prices move in the opposite direction of yields; one basis point
is one hundredth of a percentage point.
The Securities Industry and Financial Markets Association
recommends bond markets should close at 2 a.m. Eastern on Friday
and the bond market will be closed on Monday for the holiday.
Despite the slight weekly rise in yields, government bonds have
mostly drawn bidders, keeping yields in range, even as the Federal
Reserve looks set to lift interest rates in June. The Chicago
Mercantile Exchange's FedWatch tool
(http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html)currently
shows traders are betting on an 83% chance of a rate increase in
June. Treasurys have seen healthy demand amid questions about the
strength of U.S. economic growth and concerns about probes in
President Donald Trump's administration, which could alter his
inflation-boosting policy agenda.
Economic data on Friday showed the pace of growth in the first
quarter wasn't as bad as an initial read. The government raised
growth estimates from 0.7% to 1.2%, while the personal-consumption
expenditure index, the Fed's preferred measure of inflation, was
little changed at 2.4%. Meanwhile, durable-goods orders fell 0.7%
in April, a 5-month low
(http://www.marketwatch.com/story/orders-for-durable-goods-fall-to-5-month-low-2017-05-26);
and the University of Michigan reported consumer sentiment has
ticked up to 97.1 points in May, compared with 97.0 in April
(http://www.marketwatch.com/story/consumer-sentiment-edges-up-in-may-as-americans-remain-politically-polarized-2017-05-26).
The data offered few reasons for traders to change their posture
going into the extended holiday weekend, but still provided a
somewhat muted view of the U.S. economy.
Analysts highlighted a worrisome decline in corporate profits
for the first time in three quarters by a 2.5% annual rate, after
climbing 2.3% in the fourth quarter of 2016. And the shipment of
capital goods unrelated to military spending fell by 0.1% in April
after having risen 0.2% in March.
The fall in investment spending "doesn't bode particularly well
for second-quarter GDP" said Ian Lyngen, head of U.S. rates
strategy for BMO Capital Markets, in a note.
Still, some strategists found reasons for subdued optimism about
the economy.
"We're not at the beginning, and we're not anywhere near the
end," said Sharon Stark, a fixed-income strategist for boutique
investment bank Incapital. She pointed out the recent strength in
business and consumer-confidence indexes suggested the U.S. economy
was unlikely to be at the final innings of the business cycle.
See: Economy wasn't as bad as it looked in first quarter, GDP
shows
(http://www.marketwatch.com/story/economy-wasnt-as-bad-as-it-looked-in-first-quarter-gdp-shows-2017-05-26)
Meanwhile, St. Louis Fed President James Bullard, a nonvoting
member of the central bank's interest-rate setting committee,
maintained his dovish stance on Thursday night, saying the target
level for its benchmark short-term interest rate was "very close"
to where it should be.
On Wednesday, minutes from the Fed's policy meeting on May
suggested that the central bank planned on continuing on their path
toward normalizing monetary policy, but said they would pivot if
coming data continued to demonstrate weakness.
(END) Dow Jones Newswires
May 26, 2017 16:09 ET (20:09 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.