Treasurys Little Changed as Investors Monitor Oil Prices
June 22 2017 - 11:34AM
Dow Jones News
By Min Zeng
Prices of U.S. government debt were little changed Thursday with
the yield on the benchmark 10-year Treasury note near its 2017
low.
In recent trading, the yield on the benchmark 10-year Treasury
note was 2.153%, according to Tradeweb, compared with 2.156%
Wednesday. The yield's closing low in 2017 was 2.138% on June
14.
Yields fall as bond prices rise.
Investors are keeping an eye on crude oil futures, whose selloff
this week has deflated inflation expectation and boosted the appeal
of long-term government debt. Inflation chips away investors'
purchasing power from their bond investments and is seen by
investors as a big threat to the value of long-term Treasurys.
U.S. crude oil prices strengthened Thursday after settling
Wednesday at the lowest level since Aug 2016 and bringing its loss
this month to 12%. Some analysts are concerned that the oil market
may resume its slide again, a case that could drive long-term
Treasury yields down further.
A $5 billion sale of 30-year Treasury inflation-protected
security is due at 1 p.m. Thursday. The value of TIPS will be
adjusted higher when inflation readings are on the rise, making
them a popular vehicle for investors for inflation protection. This
asset class has been taking a beating lately due to softening
consumer-price index reports in the U.S. and weaker energy
prices.
Some analysts say these factors may hurt demand for the TIPS
auction. But some others believe that the recent selloff has turned
TIPS into an attractive bargain. In a low yield world with many
government bonds in Japan and the eurozone yielding below zero, the
TIPS auction may attract investors looking for income, they
say.
Treasury bond yields have fallen even as the Federal Reserve
raised short-term interest rates last week for the second time this
year and signaled another hike before the end of this year. Fed
Chairwoman Janet Yellen said slowing inflation readings may be
noisy and that a robust labor market may eventually push up
inflation.
"The Fed keeps saying inflation is coming and the bond market
continues to trade higher in price and lower in yield with almost
the opposite viewpoint," said Kevin Giddis, head of fixed-income at
Raymond James.
The yield on the 30-year Treasury bond was 2.72% recently, after
closing at 2.724% Wednesday which was the lowest close since Nov.
8, 2016. The 30-year bond has been the best performer lately, which
is typically the case when inflation expectations diminish.
The yield premium investors demanded to hold the 10-year
Treasury note relative to the 10-year TIPS fell to 1.662 percentage
point on Tuesday, the lowest level since last October.
The so-called 10-year break-even rate was 1.668 percentage point
Thursday, signaling investors' expectations of an annualized 1.668%
inflation rate on average within the next decade. The rate rose
above the Fed's 2% target in January but has since pulled back.
Some Fed officials this week signaled that if inflation pressure
continues to ease, the Fed may need to take a break on its rate
increase campaign during the second half of this year.
Patrick Harker, the president of the Federal Reserve Bank of
Philadelphia, said in an interview with the Financial Times on
Wednesday that he advocated policy makers "pause" on rates in the
coming months while they started paring back the central bank's
balance sheet that includes more than $2 trillion of Treasury
bondholdings.
Write to Min Zeng at min.zeng@wsj.com
(END) Dow Jones Newswires
June 22, 2017 11:19 ET (15:19 GMT)
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