BOND REPORT: 30-year Treasury Yield Flirts With 4-year High As Bond Market Comes Under Pressure
September 19 2018 - 11:38AM
Dow Jones News
By Sunny Oh
Treasury yields rose Wednesday, extending this week's climb, as
investors looked past trade tensions and dealt with coming
corporate debt supply.
The 10-year Treasury note yield rose 3.3 basis points to 3.081%,
close to the seven-year high at 3.109%. The 2-year note yield added
1.3 basis points to 2.812%, a decadelong high, while the 30-year
bond yield advanced 4 basis points to 3.235%, close to a four-year
high at 3.246%.
Bond prices move in the opposite direction of yields.
The bond market continued to see pressure as stocks across the
world appeared to brush off growing trade tensions from the U.S.'s
decision to slap a 10% tariff on $200 billion of Chinese goods,
though those import duties will rise to 25% by the end of the year.
China retaliated
(http://www.marketwatch.com/story/china-retaliates-with-tariffs-on-60-billion-of-us-goods-2018-09-19)
by imposing tariffs on $60 billion in U.S. exports, prompting a
threat by President Donald Trump to target an even wider range of
Chinese goods.
See: How trade-war fears have become less of a factor for
stock-market investors
(http://www.marketwatch.com/story/how-trade-war-fears-have-become-less-of-a-factor-for-stock-market-investors-2018-09-18)
Asian stock markets extended their climb. The Japanese Nikkei
and the Shanghai Composite ended higher by more than 1%. This
helped to alleviate demand for assets perceived as havens like U.S.
government debt.
Analysts say tariffs can have contradictory consequences for the
bond market. If they stoke price pressures, bonds can suffer, but
if the economy slows from weaker trade, then bonds can thrive.
"We still believe that there is scope for a settlement sometime
in the first half of 2019, risks that the trade war goes beyond our
current assumptions have increased. Should this happen, the impact
on the U.S. economy would likely be more meaningful," said analysts
at Deutsche Bank.
They estimated that if the U.S. slapped a 25% tariff on $250
billion Chinese imports, inflation could rise as much as 50 basis
points, or 0.50 percentage point.
Some investors fear China will use other means than tariffs to
retaliate against the U.S., with some suggesting the second largest
economy could sell its Treasury holdings to push the U.S.'s
borrowing costs higher. According to the widely-watched Treasury
International Capitol report, China's holdings of U.S. government
paper fell to a six-month low of $1.17 trillion in July.
Bond buyers also sold their holdings of long-dated government
paper to make room for an influx of corporate debt, accelerating
this week's yield climb. The investment-grade corporate bond market
has seen $120 billion of fresh debt in September, on track to beat
the $135 billion sold in the same month last year, according to
Bank of America Merrill Lynch.
"Rising Treasury yields also reflect competition from a robust
corporate bond new issue market," wrote Jody Lurie, a corporate
credit analyst at Janney Montgomery Scott.
On the data front, August's housing starts rose 9.2% to an
annualized pace of 1.282 million, above the forecast of 1.249
million from economists polled by MarketWatch.
(END) Dow Jones Newswires
September 19, 2018 11:23 ET (15:23 GMT)
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