BOND REPORT: Treasurys Trim Losses, Pushing Yields Lower, As Stocks Come Under Pressure
March 19 2018 - 4:13PM
Dow Jones News
By Sunny Oh
Treasury prices cut earlier losses on Monday, pushing yields
slightly lower, after stocks fell sharply, pushing investors into
haven assets like government bonds.
The market turmoil comes as investors gear up for a Federal
Reserve policy meeting this week that's seen as virtually certain
to deliver a rate increase at the conclusion of its policy
gathering on Wednesday.
How are Treasurys doing?
The 10-year Treasury note yield fell 0.4 basis point to 2.844%.
The 2-year note yield, the most sensitive to interest-rate
expectations, was up by 0.8 basis point to 2.303%. The 30-year bond
rate was flat at 3.078%.
Bond prices move in the opposite direction of yields.
What's driving Treasurys?
Treasurys rebounded after stocks sold off
(http://www.marketwatch.com/story/dow-futures-slide-more-than-100-points-as-facebook-fall-leads-us-stocks-lower-2018-03-19).
After questions about how Facebook Inc.(FB) managed user data, tech
shares saw selling, with the Nasdaq down by around 2%. Bonds, on
the other hand, attracted haven-related buying as investors sought
shelter in U.S. government paper.
See: Facebook's 7% drop puts it on pace for worst daily decline
in more than 5 years
(http://www.marketwatch.com/story/facebooks-nearly-6-drop-puts-it-on-pace-for-worst-daily-decline-in-about-2-years-2018-03-19)
A lack of economic data ahead of Wednesday's policy meeting will
keep investors focused on the Fed. This will be the first meeting
chaired by Jerome Powell since he succeeded Janet Yellen at the
helm of the central bank in early February. He will also hold his
first news conference as chairman.
Read: 5 things to watch from the Fed decision
(http://www.marketwatch.com/story/5-things-to-watch-from-the-fed-decision-2018-03-19)
The policy statement will also be accompanied by the so-called
dot plot, an aggregate of policy makers' forecasts for future
interest rates. Analysts consider a quarter percentage point hike a
near-certainty, with the futures market pricing in the increase to
100%.
Also check out: What to expect from the new Fed dot plot on
interest rates
(http://www.marketwatch.com/story/what-to-expect-from-the-new-fed-dot-plot-on-interest-rates-2018-03-16)
Once the Fed's portfolio-cutting measures reaches its full
stride, analysts at the Council on Foreign Relations estimated the
bond market will have to absorb long-dated Treasury issuance worth
5% of GDP every year. Concerns that this removal of monetary
accommodation will remove a backstop on falling bond prices have
kept a few investors on edge.
What did market participants say?
"As the Fed's balance sheet continues to shrink at an increasing
rate, the Treasury Department is flooding the front-end of the
market with supply, and credit spreads are edging higher (albeit
off extremely low levels), the specter of more meaningful fallout
from the 'gradual' removal of accommodation looms," said Ian Lyngen
and Aaron Kohli, fixed-income strategists at MarketWatch.
"While we do not expect significant changes in the statement,
there is a possibility that the Fed hints at a more hawkish
balance-of-risks, perhaps by gesturing toward potential overheating
as a concern. A more explicit hawkish shift in the FOMC's outlook
will more likely be transmitted via the economic projections, which
should show higher growth in 2018 and 2019, and perhaps higher core
PCE inflation in 2018," said Credit Suisse strategists, led by
Praveen Korapaty.
What else is on investors' radar?
The European Union agreed Monday on terms
(http://www.marketwatch.com/story/eu-agrees-on-two-year-brexit-transition-deal-2018-03-19)
of Britain's two-year transition deal after leaving the bloc in
March 2019, according to an EU official familiar with the
discussions. The decision will give British lawmakers 21 months to
complete their terms of exit.
The European Central Bank is beginning to start discussions on
the rate increase path as even the doves on the Executive Board,
its policy-making committee, have accepted its bond-buying program
should end this year, Reuters reported
(https://www.reuters.com/article/us-ecb-policy/ecb-debate-shifting-to-interest-rate-path-from-qe-sources-idUSKBN1GV1DT).
What other assets are on the move?
The yield for the British 10-year government bond was up 1.1
basis point to 1.446%. The German 10-year bond yield was mostly
flat at 0.567%.
(END) Dow Jones Newswires
March 19, 2018 15:58 ET (19:58 GMT)
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