BOND REPORT: Treasurys Steady As Jobless-claims Data Extend Streak Of Strong Reports
June 22 2017 - 9:13AM
Dow Jones News
By Mark DeCambre, MarketWatch
30-year Treasury hovering around lowest yield in seven
months
U.S. Treasury yields held their ground in Thursday trade, but
yields for short- and long-dated bonds were looking mixed for the
week, as investors digested data and talk from Federal Reserve
speakers amid a downdraft for crude-oil prices that was putting
pressure on near-term inflation expectations.
The yield on the 10-year Treasury note was little changed at
2.156%, holding its level from late Wednesday in North American
trade, while the 2-year Treasury note was down 0.8 basis point at
1.344%, compared with 1.352% in the previous session. The 30-year
Treasury bond ticked up 0.6 basis point to 2.730%, compared with
2.724%.
Bond prices and yields move in the opposite direction.
For the week, the short-term 2-year Treasury note was up 3.3
basis points, the 10-year benchmark note was near break-even, while
the long-bond, or 30-year Treasury, was 5.2 basis points lower,
touching a seven-month nadir in Wednesday trad
(http://www.marketwatch.com/story/treasury-yields-travel-higher-ahead-of-key-housing-number-2017-06-21)e.
Lower yields on the longer end of the bond curve may suggest
that investors anticipate a weaker economic outlook. Yield moves
for Treasurys come amid diminished inflation expectations, which
can erode the value of a bond's fixed payment. Falling crude-oil
prices, with U.S. oil entering a bear-market, defined as a decline
of at least 20% from a recent peak, also has amplified expectations
that consumer prices won't be substantially higher in the near
term. Crude prices on Thursday, however, were steadying somewhat
(http://www.marketwatch.com/story/oil-steady-but-jump-in-us-supplies-keeps-traders-on-edge-2017-06-22).
The 5-year forward inflation expectation rate
(https://fred.stlouisfed.org/series/T5YIFR), the bond market's
assessment of future price growth, has fallen to 1.78% after
hovering above 2% for most of the first quarter in 2017.
Last week, the Fed raised short-term interest rates for the
fourth time since December 2015 and has signaled one more-rate
increase by the end of the year. Fed speakers have acknowledged
slack in inflation but have communicated a desire to lift rates.
The central bank and its officials, including Chairwoman Janet
Yellen, have suggested inflation should eventually pick up, citing
weaker data as "one-off" as a tightening labor market leads to
higher wages.
On that front, a weekly employment reading on Thursday showed
that fewer than 250,000 Americans applied for unemployment benefits
in mid-June
(http://www.marketwatch.com/story/us-jobless-claims-edge-up-3000-to-24100-2017-06-22),
underscoring the strength of a U.S. jobs market whose, but not
significantly shifting bond-market sentiment.
Philadelphia Fed President Patrick Harker, a voting member of
the central bank's interest-rate setting committee, in an interview
with the Financial Times on Wednesday
(http://www.marketwatch.com/story/feds-harker-says-plan-to-start-to-shrink-balance-sheet-could-start-in-september-2017-06-21),
said the September policy meeting could be a suitable time for the
Fed to start reducing its balance sheet.
Still, investors have been picking up U.S. paper rather than
dumping bonds in anticipation of higher yields in the future as is
typical in a so-called rate-tightening cycle.
That bond buying comes against the backdrop of U.S. equities,
including the S&P 500 index and the Dow Jones Industrial
Average, trading near records. Traditionally, bond prices and stock
values maintain an inverse relationship.
Ajay Rajadhyaksha, head of macro research at Barclays in a
Thursday research note, suggested that bonds may be getting rich
relative to their riskier counterpart, stocks.
"Equities have had a strong run, and the contrarian view would
be to fade this move. We believe this would be a mistake. Equity
valuations are elevated, but so are global bond yields. Given the
earnings resurgence, tight spreads in advanced economy credit, and
the possibility of U.S. tax cuts, stocks have the least
unattractive risk-reward," he said.
President Donald Trump's election victory had helped to lift
yields, but much of this gain has faded as controversy over his
election campaign's ties with Russia has complicated efforts to
push the administration's ambitious policy agenda through
Congress.
Growing appetite for U.S. government paper, compared with its
European and Asian counterparts, which are offering relatively
lower yields, has been credited with helping to keep yields lower,
despite the Fed's plan to normalize monetary policy and shrink its
$4.5 trillion balance sheet.
In Europe, the benchmark 10-year German bond, known as the bund,
was yielding 0.26%.
(END) Dow Jones Newswires
June 22, 2017 08:58 ET (12:58 GMT)
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