Treasurys Sell Off as Investors Assess Tariffs
September 18 2018 - 4:38PM
Dow Jones News
By Sam Goldfarb
A weekslong selloff in U.S. government bonds intensified on
Tuesday, as the yield on the 10-year Treasury note wrenched clear
of the 3% level that has for months acted as its ceiling.
The yield on the benchmark 10-year U.S. Treasury note settled at
3.048%, its highest level since May 22, compared with 3.001%
Monday.
Yields, which rise when bond prices fall, first declined but
then climbed along with global stocks after the Trump
administration said late Monday that a 10% tax would be imposed on
Chinese goods starting Sept. 24, with the rate rising to 25% at the
end of the year.
Reflecting demand for riskier assets over safer ones, yields
continued to rise even after China said Tuesday that it would
retaliate by imposing tariffs on $60 billion of U.S. goods.
"Seemingly, there was an expectation that the tariffs that were
going to be implemented were going to be at the higher 25% rate,
and they're initially at 10%, so I think there's some relief
reaction to that," said Larry Milstein, head of government and
agency trading at R.W. Pressprich & Co.
Another factor putting pressure on Treasurys is the large amount
of new corporate debt being sold this week, analysts and traders
said. When businesses sell new bonds, investors often respond by
selling Treasurys to make room in their portfolios or hedge their
exposure to rising interest rates.
Tuesday's selling marked a break from a recent pattern, in which
a 3% 10-year yield brought strong demand from investors. The
yield's next major milestone would be reaching its 2018 closing
high of 3.109%, set on May 17.
The 10-year Treasury yield is of great importance to the global
economy, serving as benchmark for a range of interest rates used by
consumers, businesses and governments. Its difficulty rising above
3% this year has ensured that overall credit conditions in the U.S.
remain relatively favorable for borrowers, even as the Federal
Reserve has steadily raised short-term interest rates.
In recent months, Treasury yields have been simultaneously
buoyed by optimism about the U.S. economy and constrained by
concerns about the outlook elsewhere in the world, especially in an
environment of unsettled global trade relations.
Given the strength of U.S. economic data and the Fed's
commitment to raising rates, some investors have believed it was
only a matter of time before the 10-yield broke through the top of
its recent trading range.
Many, however, also say it will be difficult for yields to rise
much higher from here without a meaningful increase in inflation,
which is a main threat to bonds because it erodes the purchasing
power of their fixed returns.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
September 18, 2018 16:23 ET (20:23 GMT)
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