BOND REPORT: Treasury Yields Come Off Lows As Investors Take Down Key Debt Auction
October 23 2019 - 3:51PM
Dow Jones News
By Sunny Oh
U.S. Treasury yields came off their lows on Wednesday as bond
traders made room for the fresh influx of debt supply from the
federal government ahead of the Federal Reserve's meeting next
week, where an interest-rate cut is widely expected.
What are Treasurys doing?
The 10-year Treasury note yield was down 0.7 basis point to
1.761%, after hitting as low as 1.731% in the morning. The 2-year
note rate fell 2.3 basis points to 1.584%. The 30-year bond yield
was virtually unchanged at 2.253%.
What's driving Treasurys?
Bond prices were pressured by a sale of $41 billion of 5-year
U.S. Treasury notes as part of the "concession" process, when
primary dealers bid yields higher to ensure a successful debt
auction.
Analysts suggested there may have been tepid interest among
buyers in this week's round of debt auctions ahead of next week's
Federal Open Market Commitee's meeting
(https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html)
where it is expected to lower rates by another quarter percentage
point, the third such cut this year.
In recent days, bond markets have moved on news about the U.K.'s
attempts to break away from the European Union, a source of
geopolitical concern for the European economy in particular.
U.K.'s Prime Minister Boris Johnson said he may push for a
general election, if the EU agreed to extend the deadline for the
U.K. to leave the economic bloc. This comes after lawmakers
rejected the short timetable for Johnson's proposals on Tuesday,
making it unlikely that he would be able to push for a deal before
the end of Oct. 31 but also reducing the likelihood of a no-deal
Brexit.
Earlier in the session, a batch of mixed U.S. earnings had
investors favoring safe-haven bonds as evidence mounted that the
U.S. - China trade war was taking its toll on economic growth. With
U.S. stock market heavyweights such as Caterpillar (CAT) , Texas
Instruments (TXN) and Boeing (BA) badly missing forecasts,
(http://www.marketwatch.com/story/boeing-caterpillar-report-disappointing-earnings-but-their-shares-bounce-back-2019-10-23)worries
are growing that household spending will be next to suffer if the
import tariff fights drag on.
What did market participants' say?
"In a similar fashion to Tuesday, the early-session rally was in
the process of being retraced as [5-year notes] sold off into the
auction ... Since the result, yields have dropped across the
curve," wrote Ben Jeffery, a rates strategist at BMO Capital
Markets.
"While each day is a new opportunity, the markets seem content
with waiting for the Fed, even though there is enough "noise" out
there to require earplugs. Things like Brexit, short-term funding,
Impeachment, and the back and forth of a potential trade deal
continue to weigh heavily on trading activity," said Kevin Giddis,
chief fixed-income strategist at Raymond James.
(END) Dow Jones Newswires
October 23, 2019 15:36 ET (19:36 GMT)
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