U.S. Government Bonds Pause After Recent Rally
December 11 2018 - 11:55AM
Dow Jones News
By Sam Goldfarb
U.S. government bond prices bounced between gains and losses
Tuesday as the market showed signs of settling into a new comfort
zone following a monthlong rally.
In recent trading, the yield on the benchmark 10-year U.S.
Treasury note was 2.852%, according to Tradeweb, compared with
2.856% Monday.
Yields, which rise when bond prices fall, moved higher overnight
before easing lower at the start of U.S. trading.
Overall, the Treasury market has been fairly quiet over the past
two trading sessions, in contrast to the near-relentless price
gains of the proceeding four weeks.
With the stock market also calming a bit, many analysts now say
that Treasury yields have may have found a floor for now, although
it is unclear if they can muster a significant rebound.
Investors flocked to Treasurys in November in large part because
of mounting expectations that the U.S. economy is poised for a
slowdown due to faltering growth abroad, fading fiscal stimulus at
home and continued trade tensions between the U.S. and China.
Still, few economists are predicting a recession, raising questions
about whether investors have become overly pessimistic in recent
weeks.
A determining factor in where yields go from here will likely
come next week, when the Federal Reserve is widely expected to
raise short-term interest rates for the fourth time this year but
also signal a more cautious approach to tightening monetary policy
next year.
As it stands, the Fed has penciled in three-rate increases for
2019. Yet many investors are skeptical, with futures markets
showing roughly 50-50 odds that the central bank will raise rates
even once next year, assuming it does raise rates next week.
Given that level of skepticism, some analysts say that it will
be difficult for the 10-year yield to climb back to the 3.25% level
it reached earlier this fall even if it can edge closer to 3%.
If "the Fed does suggest a pause, it is going to be tough to get
the market to start repricing hikes for next year," said Subadra
Rajappa, head of U.S. rates strategy at Société Générale SA.
Noting the uncertainty around the U.K.'s plan to exit from the
European Union and the tariff battle between the U.S. and China,
she added that "it's not just a U.S. thing -- globally there are a
lot of risks that we need to get through."
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
December 11, 2018 11:40 ET (16:40 GMT)
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