BOND REPORT: Treasury Yields Surge As Stocks Take Off And Corporate Supply Weighs On Market
August 08 2017 - 2:24PM
Dow Jones News
By Sunny Oh
Speculation that Apple will plan a mega debt-sale has kept
investors on the sidelines
Treasurys mostly sold off, driving yields higher, on Tuesday as
investors showed an appetite for risk, rotating out of bonds and
other assets perceived as safe into stocks, while incoming
corporate supply weighed on demand for U.S. government paper.
The 10-year benchmark Treasury note's yield rose 2.9 basis
points to 2.284%. The 2-year Treasury note was steady at 1.355%,
whereas the 30-year Treasury, known as the long bond rose 3.3 basis
points to 2.866%. Bond prices move inversely to yields.
Risk-on sentiment took off spurring outflows from government
paper as investors sold bonds and plowed into equities. Strong
performance from financial stocks including J.P. Morgan Chase(JPM)
put the Dow Jones Industrial Average on track
(http://www.imf.org/en/Publications/WEO/Issues/2017/07/07/world-economic-outlook-update-july-2017)
to hit its 10th straight record-setting session. On the other hand,
haven investments like gold slipped, edging lower more than 0.1% to
$1,263 an ounce.
"Stocks are off to the races, despite everybody being quite
negative on equities going higher," said Tom di Galoma, managing
director of Treasurys trading at Seaport Global Securities.
Di Galoma also felt the broad selling seen across the curve came
amid rumors that Apple Inc.(AAPL) could bring forward a large debt
offering after posting better-than-expected earnings in its third
quarter
(http://blogs.marketwatch.com/thetell/2017/08/01/apple-reports-earnings-ahead-of-expected-iphone-launch-live-blog/).
In the past, the company has taken advantage of historically low
borrowing costs to return profits back to shareholders through
dividends and stock buybacks. A large debt sale from a creditworthy
firm could keep money managers on the sidelines as they free up
cash to make their bids.
"There's been some speculation that [Apple] may bring on a very
sizable deal. The market is being overwhelmed by corporate supply,"
said di Galoma.
The Treasury yield curve steepened after the Job Openings and
Labor Turnover Survey showed a record number of openings, surging
to 6.16 million in June from 5.66 million in May. A steepening
yield curve, which chart maturities against the returns of a bond,
suggests investors are betting that the strong labor market could
stoke wage and inflation pressures. Higher consumer prices can
erode the value of bond's fixed interest payments.
Elsewhere, the global economy showed signs of weakness despite
previous calls that its recovery was back on track from the likes
of the International Monetary Fund
(http://www.imf.org/en/Publications/WEO/Issues/2017/07/07/world-economic-outlook-update-july-2017).
The Japanese trade surplus came in at Yen518.5 billion ($4.7
billion) for June. Analysts also highlighted that the German trade
surplus fell below expectations after exports fell for the time
this yea
(http://www.marketwatch.com/story/german-exports-fall-for-first-time-in-2017-2017-08-08)r,
slipping to EUR22.3 billion ($26.3 billion) in the same month.
If major exporters like Germany lose steam it could reverse
investor optimism over the eurozone's economic revival, and arouse
further caution from the European Central Bank as it attempts to
steer away from years of easy-money policies while avoiding a
market tantrum.
"When combined with yesterday's disappointing German industrial
production figures, which declined for the first time this year,
the data brings into question the assumption that core Europe has
made it out of the woods of cyclical stagnation," said Ian Lyngen,
head of U.S. rates strategy for BMO Capital Markets, in a note to
clients.
The U.S. Treasury Department auctioned off $24 billion of 3-year
notes to enthusiastic demand, a strong showing from the first of
three key debt sales this week. Treasury yields can be influenced
by auctions, but traders appeared to shrug off its results.
(END) Dow Jones Newswires
August 08, 2017 14:09 ET (18:09 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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