BOND REPORT: Treasury Yields Trade Slightly Higher As Focus Turns To Bond-issuance Rush, Fed Meeting
December 12 2017 - 11:10AM
Dow Jones News
By Sunny Oh
Treasury yields inched higher on Tuesday but remained largely
rangebound as investors shifted attention toward a wave in
corporate bond and municipal-bond issuance, with issuers looking to
sell debt ahead of 2017. Meanwhile, the Federal Reserve was slated
to kick off its closely watched two-day policy meeting on Tuesday,
which will influence investing.
What are Treasurys doings?
The 2-year note yield ticked higher to 1.831%, from 1.823% late
Monday. The 10-year note yield rose to 2.400%, from 2.387%. The
30-year bond yield was at 2.784%, versus 2.772%.
Bond prices move inversely to yields.
What's driving markets?
Investors are seeing a lull in trading as busy bond-buyers
handle a strong rush of supply from corporate and municipal bonds
as issuers look to get ahead of the tax plan's passage and remain
grandfathered under the old tax rules. That has temporarily shifted
focus away from the market for government paper.
Wholesale prices rose 0.4% in November, pulling it up to 3.1%
over the past 12 months
(http://www.marketwatch.com/story/us-wholesale-inflation-hits-nearly-6-year-high-adds-to-case-for-fed-rate-hike-2017-12-12).
Higher producer prices can lead to building "pipeline" of
inflationary pressures and is one reason forecasters are hopeful
that the recent weakness in inflation will abate. That could
discourage investors from snapping up long-dated Treasurys, whose
value are worn down by higher prices.
The Federal Open Market Committee, the central bank's
rate-setting group, convene Tuesday. They are expected to deliver a
third interest-rate hike for the year. That fact and a bevy of
other potentially market-moving news, including consumer-price
index data, has captured investor attention.
See: What bond and currency traders are looking for from
Yellen's Fed decision
(http://www.marketwatch.com/story/what-bond-and-currency-traders-are-looking-for-from-yellens-fed-decision-2017-12-11)
What did market participants say?
"A primary reason for the tight core outlook for [10-year
Treasurys] is the strong acceptance for the remaining supply in
corporates--already thinning--and near record-level municipal bond
sales that could be restricted if/when the tax bill passes. There
is no particular reason to rush into Treasuries as they certainly
will provide ample supply in 2018-2019," wrote Jim Vogel, an
interest-rate strategist for FTN Financial.
Read: Municipal bonds see deluge of supply as Republican tax
plan fears build
(http://www.marketwatch.com/story/municipal-bonds-see-deluge-of-supply-as-republican-tax-plan-fears-build-2017-12-04)
(http://www.marketwatch.com/story/municipal-bonds-see-deluge-of-supply-as-republican-tax-plan-fears-build-2017-12-04)Also
check out: Companies rush to sell bonds to get ahead of tax plan,
sparking 'carnage'
(http://www.marketwatch.com/story/companies-rush-to-sell-bonds-to-get-ahead-of-tax-plan-sparking-carnage-2017-11-10)
What else are on investors' radar?
The NFIB small business optimism index climbed to 107.5 in
November
(http://www.marketwatch.com/story/small-business-sentiment-in-november-powers-to-the-second-highest-reading-on-record-2017-12-12),
the second highest reading on record. Budding confidence that
Congress will pass a tax cut has lifted small-business owners, who
are classified as pass-through firms, one of the chief
beneficiaries of the GOP tax plan
(http://www.marketwatch.com/story/how-the-trumps-tax-bill-will-help-businesses-and-lobbyists-2017-11-08).
How are other assets doing?
The German 10-year government bond yield was up 0.7 basis point
to 0.304%. The French 10-year bond yield rose 1.4 basis point to
0.636%.
(END) Dow Jones Newswires
December 12, 2017 10:55 ET (15:55 GMT)
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