Treasurys Eke Out Small Price Gains as Investors Monitor Oil Prices
June 22 2017 - 04:16PM
Dow Jones News
By Min Zeng
U.S. government bonds eked out some price gains Thursday with
the yield on the benchmark 10-year Treasury note falling to near
its 2017 low.
Traders said lower government bond yields in Germany dragged
down U.S. yields. Treasury debt continues to offer more attractive
yields than government bonds in many developed countries, which has
played a big role in holding U.S. long-term government bond yields
at very low levels from a historical standpoint over the past few
years.
The yield on the benchmark 10-year Treasury note settled at
2.153%, compared with 2.156% Wednesday. The yield's closing low in
2017 was 2.138% on June 14. Yields fall as bond prices rise.
Thursday's highlight was a $5 billion sale of 30-year Treasury
inflation-protected security that drew the strongest demand since
2011.
The strong result surprised some traders and analysts because
this asset class has been taking a beating lately due to softening
consumer-price index reports in the U.S. and weaker energy
prices.
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.
Some analysts say buyers deem the recent selloff has turned TIPS
into an attractive bargain.
Debate on inflation has been heating up lately, especially after
Fed Chairwoman Janet Yellen last week said that slowing inflation
data could be noisy and that a robust labor market may eventually
push up inflation.
"There is still a lot of uncertainty regarding the inflation
outlook and TIPS are a little bit more attractive here," said Dan
Heckman, senior fixed-income strategist at U.S. Bancorp Wealth
Management.
Mr. Heckman said the auction also appeals to investors looking
for long-dated high quality assets to match their obligations such
as pension funds.
Demand for long-dated bonds has been robust because large bond
buying from the European Central Bank and the Bank of Japan
continue to shrink the pool of assets available to private sector
investors.
The indirect bidding, a proxy of foreign demand, was 76.1% for
the 30-year TIPS sale. It was the highest level since June 2016, a
sign of global investors' thirst for high-quality bonds in a
low-yield world.
Another sign of investors' hunger for income: Argentina earlier
this week sold $2.75 billion of 100-year bonds in U.S. dollars,
which attracted nearly $10 billion in orders.
Investors are keeping an eye on crude oil futures, whose selloff
this week has deflated inflation expectations 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 August 2016., but still down
about 12% this month.
Some analysts are concerned that the oil market may resume its
slide again, a case that could drive long-term Treasury yields down
further.
Treasury bond yields have fallen even as the Fed raised
short-term interest rates last week for the second time this year
and signaled another hike before the end of this year.
"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 settled at 2.724%
Thursday, unchanged from 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.
Write to Min Zeng at min.zeng@wsj.com
(END) Dow Jones Newswires
June 22, 2017 16:01 ET (20:01 GMT)
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