BOND REPORT: Treasury Yields Slump After Saudi Arabian Oil Facilities Hit By Drone Attack
September 16 2019 - 7:53AM
Dow Jones News
By Sunny Oh
U.S. Treasury prices climbed on Monday, pushing yields lower,
after an attack on Saudi Arabian oil production facilities sent oil
prices skyrocketing and investors turning to haven assets.
What are Treasurys doing?
The 10-year Treasury note yield fell 6.8 basis points to 1.833%.
The 2-year note rate was down 5.4 basis points to 1.747%, while the
30-year bond yield slipped 7 basis points to 2.304%.
In the previous week, the 10-year note staged its biggest weekly
rise since 2013, while the shorter-dated 2-year note logged its
largest weekly climb since 2009.
See: Why the Saudi oil attack is a 'big deal' that could be a
'game changer' in stock markets and crude prices
(http://www.marketwatch.com/story/why-the-saudi-oil-attack-is-a-big-deal-that-could-be-a-game-changer-in-stock-markets-and-crude-prices-2019-09-15)
Read: Oil's 10% surge after Saudi attack puts it on track for
the biggest daily gain in 3 1/2 years
(http://www.marketwatch.com/story/us-oils-10-surge-after-saudi-attack-puts-it-on-track-for-the-biggest-daily-gain-in-312-years-2019-09-15)
What's driving Treasurys?
Geopolitical jitters and global economic uncertainty resurfaced
after an attack devastated sections of Saudi Aramco's Abqaiq oil
refining plant and a nearby crude field, drawing attention to the
vulnerability of oil production facilities in the Middle East.
Estimates suggest that up to 50% of the Saudi Arabia's oil
production could briefly knocked offline.
West Texas Intermediate crude for October delivery, the U.S.
benchmark contract, rose 8.2% at $59.39 a barrel on Monday.
Investors flocked toward bonds as risk assets were set to sag at
the start of the week. Futures for the S&P 500 and the Dow
Jones Industrial Average showed U.S. stocks were set to tumble at
the opening bell.
The strikes on Saudi Arabia overshadows the coming Federal Open
Market Committee two-day meeting set to begin on Tuesday. Fed
Chairman Jerome Powell is expected to underline the rising global
risks to the U.S. economy, while highlighting that resilient
domestic growth is likely to keep the central bank from delivering
a full easing cycle.
Traders on the fed-fund futures market now anticipate an 82%
chance of a quarter point rate cut at this week's meeting, after
having fully baked in the cut a month ago
(https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html).
Check out: 3 things to watch as Fed meets on interest rates
(http://www.marketwatch.com/story/3-things-to-watch-as-fed-meets-on-interest-rates-next-week-2019-09-14)
What did market participants' say?
"There are three questions following the drone attacks on Saudi
oil installations: How fast can supply recover, can further attacks
be prevented, and what will the wider geopolitical implications be?
Oil prices spiked higher but drifted down into the European open,"
wrote Kit Juckes, global macro strategist at Société Générale.
"However, even for those who aren't skeptical about Saudi claims
to be able to restore a third of the lost output as early as today,
there is bound to be a higher risk premium attached to prices going
forwards. Slower global growth was beginning to act as a drag on
oil prices, but the risk premium goes the other way and that in
turn is another drag on global growth," said Juckes.
(END) Dow Jones Newswires
September 16, 2019 07:38 ET (11:38 GMT)
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