BOND REPORT: U.S. Treasury Yields Fall After German Election Results, North Korea
September 25 2017 - 4:43PM
Dow Jones News
By Sunny Oh
North Korea foreign minister claims Trump rhetoric is war
declaration
U.S. Treasurys rose, pushing down yields, on Monday, in step
with their German counterparts, after mixed results from Germany's
weekend election and North Korea's threats against the U.S.
fostered a modest flight to assets perceived as safer.
The benchmark 10-year Treasury yield fell more than 4 basis
points to 2.220%. The 30-year bond yield experienced a similar drop
to slip to 2.758%, while the 2-year Treasury note yield shaved 1.4
basis point to fall to 1.425%. Bond prices move in the opposite
direction of yields.
Likewise, the yield for the German 10-year Treasury note, a
proxy of the eurozone's viability, fell 5 basis points to 0.399%.
German business confidence measures had also slipped
(http://www.marketwatch.com/story/german-business-sentiment-falls-in-september-ifo-2017-09-25)
as manufacturing showed signs of slowing.
U.S. government paper and German sovereign debt tend to trade in
the same direction as they share similar qualities in that they are
highly liquid and are viewed as relatively risk-free places for
investors to store money.
Germany's election raised new questions about the eurozone's
political landscape. Although German Chancellor Angela Merkel's
center-right Christian Democrats come in first with around 33% of
the vote, it marked the party's lowest share since the end of World
War II. The center-left Social Democrats also saw their support
fall to less than 21%, marking their worst showing since before
World War II.
While Merkel's party is expected to lead a new coalition
government, negotiations are expected to be prolonged. With an
element of uncertainty still at play, investors say the outcome has
stalled the eurozone resurgence, driven by improving economic
conditions and Emmanuel Macron's victory over his far-right
counterpart Marine Le Pen
(http://www.marketwatch.com/story/emmanuel-macron-5-things-to-know-about-the-man-poised-to-be-frances-president-2017-04-24)
in the French election this summer.
See: How Merkel's choice of partner could set the tone for the
euro
(http://www.marketwatch.com/story/dont-call-the-german-election-boring-it-could-mean-a-huge-shift-for-the-eurozone-2017-09-18)
Analysts at UBS estimated it could take three to six months for
Merkel to form a new coalition, with a fully functioning government
expected to settle in early in 2018.
The BlackRock Investment Institute saw the result "slowing
momentum behind efforts to strengthen the eurozone."
Purchases of haven bonds, accelerated later in the session,
after North Korea's foreign minister on Monday in New York said
President Donald Trump's recent rhetoric is tantamount to a
declaration of war, asserting his nation's right to shoot down U.S.
aircraft. Investors shifted out of stocks and risky assets in favor
of havens like the Japanese
(http://www.marketwatch.com/story/euro-weakens-after-german-election-results-2017-09-25)
yen and gold futures
(http://www.marketwatch.com/story/gold-fights-to-shake-off-back-to-back-weekly-declines-2017-09-25).
Beyond politics, Chicago Fed President Charles Evans argued the
Federal Reserve should hold off on raising rates until inflation.
coming in below the central bank's 2% annual target, and wage
pressures show clear signs of normalizing. But other Fed policy
makers have been more hawkish in their view on monetary policy,
suggesting growing consensus around at least one more rate increase
in 2017.
Earlier in Monday, New York Fed President William Dudley said
the factors keeping down consumer prices should dissipate and cited
the rise in import inflation
(http://www.marketwatch.com/story/feds-dudley-says-import-prices-will-help-boost-inflation-2017-09-25).
The government reported last week that the cost of consumer goods
had jumped 0.6% in August, the first increase in four months.
(http://www.marketwatch.com/story/cost-of-imported-goods-surge-in-august-led-by-fuel-2017-09-19)
Read: Two Fed officials say 'normal' interest rates may peak far
below prior cycles
(http://www.marketwatch.com/story/feds-williams-says-normal-interest-rate-around-25-2017-09-22)
Meanwhile, European Central Bank President Mario Draghi
announced his confidence that inflation would near its target rate,
but repeated the party line that further monetary accommodation was
needed to achieve the outcome. Nonetheless, some investors are
anticipating the ECB to announce some measure of tapering its asset
purchases next month
(http://blogs.marketwatch.com/thetell/2017/09/07/ecb-live-blog-is-a-strong-euro-making-mario-draghi-miserable/).
(END) Dow Jones Newswires
September 25, 2017 16:28 ET (20:28 GMT)
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