BOND REPORT: Treasury Yields Rise After Fed's Beige Book Signals Inflation Buildup
January 17 2018 - 4:04PM
Dow Jones News
By William Watts, MarketWatch , Sunny Oh
Treasury yields swung higher Wednesday after the Federal
Reserve's Beige Book showed a buildup of inflationary pressures in
its regional districts.
What are yields doing?
The yield on the benchmark 10-year U.S. Treasury note climbed
3.5 basis points to 2.579%, while the yield on the 30-year bond
rose 1.4 basis point to 2.850%.
The yield on the 2-year note , sensitive to shifting
expectations for central bank policy, rose 2.5 basis points to
2.043%. The yield for the short-dated maturity has been up for 11
straight trading sessions.
Yields and Treasury prices move in opposite directions.
What's driving the market?
The Fed's so-called beige book, a roundup of economic anecdotes
gathered by regional Fed banks, painted a portrait of a robust U.S.
economy. But traders fixated mostly on reports that wage pressures
were 'modest'.
Central bankers would be able to raise rates at a swifter pace
this year without incurring the doubts of bullish bond investors,
who have cited the Fed's willingness to tighten monetary policy
despite muted inflation data. A resurgence of inflation could
dispel such concerns and give a lift to long-dated yields.
See: Fed's Beige Book finds muted reaction to Republican tax
plan
(http://www.marketwatch.com/story/feds-beige-book-finds-muted-reaction-to-republican-tax-plan-2018-01-17)
Dallas Fed President Robert Kaplan said there could be more than
three rate increases in 2018
(https://www.wsj.com/articles/feds-kaplan-expects-3-rate-rises-this-year-but-says-more-may-be-needed-1516183201).
Cleveland Fed President Loretta Mester is set to speak at 4:30
p.m.
Worries persist over the potential for a government shutdown at
the end of the week unless lawmakers and the White House come to an
agreement. House Republicans released a short-term spending bill on
Tuesday to avert a government shutdown on Friday. But the bill
precluded details of an immigration deal seen as key to earning
Democrats' support.
See: Here's how the stock market has handled past government
shutdowns
(http://www.marketwatch.com/story/heres-how-the-stock-market-has-handled-past-government-shutdowns-2018-01-16)
What are analysts saying?
"The note that some firms are finding more power to increase
prices for consumers is very encouraging...we will see an
acceleration in the inflation data during the first quarter," said
Thomas Simons, senior money market economist for Jefferies.
"The US government shutdown tango is back on the front burner
with its full complement of bravado, accusations, and intrigue. It
looks like House Republicans are trying to get another can kicking
done by taking the immigration issue off the table for the Friday
deadline," said Arnim Holzer, strategist for EAB Investment
Group.
What else is on investors' radar?
December industrial production jumped 0.9% in December, above
the 0.6% MarketWatch forecast, up from 0.2% in December. This
marked the fourth straight monthly increase since August. Capacity
utilization, a measure of manufacturing slack, rose to 77.9% in
December
(http://www.marketwatch.com/story/industrial-output-jumps-09-in-december-for-the-fourth-straight-monthly-gain-2018-01-17),
the highest rate since February 2015.
What other assets are in focus?
The 10-year German bond yield , often used as a proxy for the
broader eurozone economy, was flat at 0.497%, according to
Tradeweb.
(END) Dow Jones Newswires
January 17, 2018 15:49 ET (20:49 GMT)
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