U.S. Bond Prices Slip as Fed Rate Increase Seen More Likely in December
September 21 2017 - 4:24PM
Dow Jones News
By Daniel Kruger
U.S. government bond prices extended a nine-day streak of
declines the day after the Federal Reserve signaled that it could
raise rates again in December.
The yield on the benchmark 10-year Treasury note rose to 2.278%
from 2.276% Wednesday. Yields rise as bond prices fall.
Meanwhile, the price on the two-year Treasury note, which is
more sensitive to market expectations for Fed policy, was steady,
with its yield at 1.442%, the highest closing level since November
2008.
The Fed announced Wednesday that it will begin to shrink its
$4.5 trillion bond portfolio in October an effort to bring it into
alignment with levels before the financial crisis. The central bank
will be pulling $10 billion a month from the financial system, and
increasing that amount gradually. Many analysts expect the
reductions to reach $1 trillion by early 2020.
Should the Fed decide to raise interest rates again this year,
it will have met its own forecast of three increases, which they
had released at their meeting last December. Policy makers released
projections that showed they expect to increase rates again later
this year, followed by three more times in 2018.
Prices for stocks and bonds have surged this year, even as the
Fed has made it clear it wants to dial back on the stimulative
policies that have been in place during the period since the
financial crisis.
"Financial conditions have eased quite a lot," said Christopher
Sullivan, a bond fund manager for the United Nations Federal Credit
Union. "There's a likelihood just based on that" of an additional
rate increase.
U.S. markets have benefited from the stimulative policies of
other central banks, particularly the European Central Bank and the
Bank of Japan, which are still pumping money into the financial
systems by purchasing government bonds.
Goldman Sachs Group assessed the odds of a December rate
increase at 75%, up from 60% before Wednesday's Fed meeting, citing
Chairwoman Janet Yellen's skepticism that weakness in inflation
over the last several months will endure. Those odds roughly match
the futures market, which is pricing in 78% odds of higher rates,
according to CME Group.
Write to Daniel Kruger at daniel.kruger@wsj.com
(END) Dow Jones Newswires
September 21, 2017 16:09 ET (20:09 GMT)
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