BOND REPORT: Treasury Yields Steady As Focus Shifts To Fed Gathering
September 21 2018 - 4:38PM
Dow Jones News
By Sunny Oh
Treasury yields fell slightly Friday, leaving the week's climb
intact, as traders looked ahead to next week's meeting by the
Federal Reserve, where a rate increase is expected.
The 10-year Treasury note yield fell 1 basis point to 3.068%,
trimming the weeklong climb to 7.6 basis points. The 2-year note
yield was mostly flat at 2.803%, around its highest levels since
June 2008, leaving its weekly yield gain at 2.2 basis points. The
30-year bond yield was down 0.7 basis point to 3.206%, but up 7.6
basis points for the week, according to Tradeweb data.
Bond prices move in the opposite direction of yields.
In a session with no first-tier economic data, investors looked
to next week's Fed meeting in Sept. 25-26, where a rate increase is
expected. More important, investors will hone in on Fed Chairman
Jerome Powell's news conference where he may debate the risks to
the economy, and the future rate increase trajectory. Based on
prices for eurodollar futures
(http://www.marketwatch.com/story/heres-when-traders-began-to-fall-in-line-with-the-feds-projected-hiking-path-2018-09-20),
traders have already priced in two additional hikes this year, and
two more next year. The fed-funds rate is currently at a range of
1.75% to 2.00%.
"The Fed is widely expected to hike another 25 basis points to a
range of 2.00-2.25% at the September confab. Powell's news
conference will, as always, be closely watched but we expect his
comments to reflect growing upside risks to the economic backdrop.
He is likely to throw shade on the notion that tariffs are a
significant downside risk," wrote Tom Porcelli, chief U.S.
economist for RBC Capital Markets.
Market participants will also be on the lookout for remarks on
whether the Fed will pause or shoot past the neutral rate, where
monetary policy is neither restrictive or accommodative. Fed. Gov.
Lael Brainard and other senior Fed officials have said the central
bank could push interest rates above that threshold if the economy
maintains its momentum.
But tightening policy beyond the neutral level is a "recipe for
the yield curve to invert," said Tom Graff, head of fixed income at
Brown Advisory, referring to the spread between short-term and
long-term bond yields. Since World War II, a recession has followed
every time this spread turned negative, inverting the yield
curve.
See: With its last easy decision, Fed will try to avoid adding
fuel to the fire
(http://www.marketwatch.com/story/with-its-last-easy-decision-fed-will-try-to-avoid-adding-fuel-to-the-fire-2018-09-21)
Japanese debt sold off after the Bank of Japan which held its
regular policy-setting gathering on Tuesday, reduced its
bond-buying to Yen50 billion ($0.44 billion) to Yen60 billion yen,
surprising markets. The central bank has the discretion to
calibrate its bond purchases as part of its yield-curve control
policy. BOJ Gov. Haruhiko Kuroda said in July
(http://www.marketwatch.com/story/traders-are-already-testing-the-bank-of-japans-plan-for-more-flexible-bond-trading-2018-08-01)
that the central bank would allow the yield on the 10-year bond to
fluctuate by as much as 20 basis points on either side of 0%,
double the previous range of 0 to 10 basis points.
The 10-year Japanese government bond yield rose 1.1 basis points
to 0.129%, while the 40-year bond yield climbed 5.2 basis points to
1.048%, its highest since November.
(END) Dow Jones Newswires
September 21, 2018 16:23 ET (20:23 GMT)
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