BOND REPORT: Government Bonds Draw Bids As U.S.-North Korea Tensions Mount
August 09 2017 - 8:12AM
Dow Jones News
By Rachel Koning Beals
Looming supply is keeping Treasury gains in check
U.S. Treasurys on Wednesday drew buyers attracted to the
perceived safety of government paper, pushing yields lower, as the
world monitored escalating, bellicose rhetoric between the U.S. and
North Korea.
The 10-year benchmark Treasury note's yield fell about 4.2 basis
points to 2.240%, extending a yield slump seen over the first two
days of the week. Yields fall as prices gain.
The yield for the two-year Treasury note was down 2.8 basis
points, at 1.335%, while the 30-year Treasury fell 4.7 basis points
to 2.820%.
The German 10-year government bond's yield shed nearly 4 basis
points to 0.4400%.
A shift to haven assets also saw investors also buy Swiss
francs, the Japanese yen--which hit an eight-week high against the
dollar
(http://www.marketwatch.com/story/dollar-slides-vs-swiss-franc-as-us-north-korea-discord-prompts-run-to-safety-2017-08-09)--and
gold futures,
(http://www.marketwatch.com/story/gold-gains-about-1-as-us-north-korea-tensions-grow-2017-08-09)
which all tend to lure bidders in times of uncertainty or fear, and
move inversely to risk assets like stocks. The Dow Jones Industrial
nd the S&P 500 index were set to decline along with the other
global equity benchmarks.
Swings on Wall Street come as North Korean leader Kim Jong Un
made his most explicit threat to strike a U.S. military base in
Guam
(http://www.marketwatch.com/story/north-korea-threatens-missile-strike-on-us-base-on-guam-2017-08-08)
following President Donald Trump's warning to Pyongyang not to
"make any more threats" to the U.S., saying it would face a "fire
and fury" response
(http://www.marketwatch.com/story/trump-today-president-says-north-korea-faces-fire-and-fury-if-it-doesnt-halt-threats-2017-08-08)
"like the world has never seen."
Still, despite dip in yields, implying demand for sovereign
paper has picked up, one measure of volatility in government bonds
was relatively muted, according to Tom di Galoma, managing director
of Treasury trading at Seaport Global.
Bank of America Merrill Lynch's MOVE index was currently around
47.33, below its one year average of about 64.5 and five-year
average of 69.59.
That said, di Galoma said he viewed a "North Korea skirmish or
battle a very realistic thing."
The Treasury trader attributed the muted reaction in the
bond-volatility gauge to market participants continued to sell
volatility, with hope of a spike, with few buyers emerging.
Trump's on Tuesday came after the Washington Post report
(https://www.washingtonpost.com/world/national-security/north-korea-now-making-missile-ready-nuclear-weapons-us-analysts-say/2017/08/08/e14b882a-7b6b-11e7-9d08-b79f191668ed_story.html?utm_term=.0938becb046e)
that North Korea has built a miniaturized nuclear warhead, that
could give it the ability to deliver a nuclear-grade payload to a
target in the Asian region.
"The bellicose rhetoric from the U.S. and North Korean officials
is the main driver today. We would qualify that assessment by
noting that first, the market moves are rather modest, suggesting a
low-level anxiety among investors. Second, that the pre-existing
trends have mostly been extended," said analysts at Brown Brothers
Harriman, in a note.
"The U.S. has threatened to use force to deter North Korea, but
it prefers to use multinational efforts and sanctions. Despite the
rhetoric of unilateralism, the Trump administration is attempting
to find an alternative to a U.S.-North Korea confrontation," they
continued. "China has taken modest steps, but it has no desire for
unrest on its borders, and it fears that a united peninsula would
be dominated by South Korean interests, which means the U.S."
Treasurys fell in the previous session, facing coming government
supply, as well as competing corporate bond auctions, including
rumors that Apple planned to unveil a large debt issue this week.
Such offerings can push yields higher as investors sell Treasurys
in preparation to buy richer yielding new issuance. Yields also
tend to rise as under bond underwriters look to hedge against large
interest-rate moves by selling their holdings of government
paper.
Large U.S. firms unloaded $16.1 billion worth of debt on Monday,
according to data compiled by Janney Montgomery Scott.
The rush of new corporate debt also comes amid speculation that
Apple Inc.(AAPL) could bring forward a large bond 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/).
Traders also eyed the Treasury Department's auction for $24
billion of three-year notes as it took in enthusiastic demand, a
strong showing for the first of three key debt sales this week.
(END) Dow Jones Newswires
August 09, 2017 07:57 ET (11:57 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
Apple (NASDAQ:AAPL)
Historical Stock Chart
From Mar 2024 to Apr 2024
Apple (NASDAQ:AAPL)
Historical Stock Chart
From Apr 2023 to Apr 2024