BOND REPORT: Treasury Yields Rise As Haven Demand Ebbs
August 22 2017 - 4:16PM
Dow Jones News
By Sunny Oh
White House, lawmakers make progress toward tax overhaul:
report
Treasury yields rose on Tuesday trade as bond investors shed
government paper and other assets perceived as havens in favor of
stocks after a news report said the White House and Congress had
made progress in coming up with a more concrete plan for a tax
overhaul.
The 10-year Treasury yield rose 3.3 basis points to 2.215%,
while the 30-year bond's yield added 2.4 basis points to 2.789%.
The yields for both maturities reversed the previous session's
decline.
The yield for the 2-year Treasury note added 2.4 basis points to
1.326%. Bond prices move inversely to yields.
Treasurys endured a bout of selling pressure, pushing yields
higher, after Politico reported
(http://www.politico.com/story/2017/08/22/trumps-team-and-lawmakers-making-strides-on-tax-reform-plan-241873)
that President Donald Trump's tax plans were back on track giving
heart to those who still hold out hope for a pro-growth agenda,
expectations for which have slipped markedly as Trump remains
entangled with political drama since his election. The so-called
reflation trade, bets that the new administration could lead to a
bump in growth and inflation, is bearish for Treasurys.
"I would attribute the selloff to the risk-on sentiment in
equities as well as the story on substantial tax reform," said
Subadra Rajappa, head of U.S. rates strategy at Société
Générale.
In addition, key figures in Washington tried to allay concerns
that the U.S. could see a repeat of the debt ceiling crisis.
Treasury Secretary Steven Mnuchin said he was confident Congress
would raise the borrowing limit before October. Senate Majority
Leader Mitch McConnell, R-Ky., echoed his remarks, saying there was
a "zero chance" of a government shutdown.
"There was very little clarity in the last several weeks on
politics and tax reform, and now we're approaching September, we're
getting a few more sound bites," Rajappa added.
See: Debt-ceiling fears bubble up in Treasury bills
(http://www.marketwatch.com/story/debt-ceiling-fears-bubble-up-in-treasury-bills-2017-07-25)
As investors gain their risk appetite, safe haven assets like
gold
(http://www.marketwatch.com/story/gold-struggles-to-reclaim-1300-despite-safe-haven-underpinnings-2017-08-22),
the Japanese yen
(http://www.marketwatch.com/story/dollar-recovers-though-hemmed-in-ahead-of-potential-rate-clues-from-feds-jackson-hole-retreat-2017-08-22)and
U.S. government paper have endured modest selling pressure. The
greenback bought Yen109.47 on Tuesday, compared with Yen108.98 late
Monday in New York. At the same time, gold prices lost $5.70 to end
at $1285.1 an ounce, its decline coming a day after the precious
metal settled at a three-month high.
But geopolitical concerns haven't been completely put to bed as
tensions in North Korea continue to simmer. On Tuesday, Pyongyang
called President Donald Trump's approach to the crisis on the
Korean Peninsula "unimaginably reckless."
(https://www.wsj.com/articles/north-korea-threatens-absolute-force-as-u-s-south-hold-military-drills-1503392504)
Earlier this week, the U.S. and South Korea kicked off annual
military exercises that North Korea's ruler Kim Jong Un may view as
preparation for an invasion of the rogue nation, which has been
locked in a high-stakes verbal battle with Trump.
Elsewhere, the German ZEW survey, a closely watched indicator of
economic sentiment in the export giant, has slipped by 7.5 points
to 10 points, reflecting concerns over the sustainability of the
country's pace of growth. But the 10-year German government bond's
yield still rose 1.2 basis point to 0.399%, following the updraft
in Treasurys.
Ian Lyngen, head of rates strategy at BMO Capital Markets, said
a brittle confidence and an absence of inflation puts European
Central Bank President Mario Draghi in a difficult position ahead
of the conference in Jackson Hole, Wyo.
Though the ECB may hope to normalize monetary policy, pushing
too aggressively to reduce the central bank's bond-buying program
could roil markets and harm the eurozone's nascent recovery, he
said.
Italian bond yields climbed after an interview with former
Italian President Silvio Berlusconi resuscitated talk of a parallel
currency. The yield for the Italian 10-year government bond, the
interest payment for which is denominated in euros, rose 6.2 basis
points to 2.092%.
See: Why Mario Draghi can't back down from ECB taper hints
(http://www.marketwatch.com/story/why-mario-draghi-cant-back-down-from-ecb-taper-hints-2017-07-19)
(END) Dow Jones Newswires
August 22, 2017 16:01 ET (20:01 GMT)
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