BOND REPORT: Treasury Yields Tick Up Before Spate Of Fed Speakers That Could Confirm Higher-rate Path
June 23 2017 - 11:23AM
Dow Jones News
By Sunny Oh
Bond traders will be eyeing speeches from James Bullard, Loretta
Mester and Jerome Powell over the course of the day
Treasury yields edged up ahead of a packed schedule of Federal
Reserve speakers that could give market participants direction on
how aggressively the central bank plans to tighten monetary policy
even as recent consumer price data has shown weakness.
The yield for the benchmark 10-year note rose 0.9 basis point to
2.154%. One basis point is one hundredth of a percentage point;
Bond prices move inversely to yields.
The 2-year note was relatively unchanged at 1.345%, while the
30-year bond, or the long bond, gained 1.8 basis point to
2.724%.
Yields have largely remained unchanged on Friday and for the
week as bond investors are looking for signs of disagreement among
the Fed over last week's policy statement, which hinted that the
central bank was still on for one more rate hike and a balance
sheet reduction by the end of the year. Traders and analysts alike
feel the last three months of deteriorating inflation data should
warrant further caution from the Fed at the risk of running ahead
of the curve.
It's partly why the yield for the 10-year note has budged up a
single basis point since June's quarter-point rate hike. Long-dated
yields should usually move higher in response to an interest rate
increase.
"There is a substantial risk that the Fed's opportunistic
tightening campaign is a hawkish mistake, noted Joachim Fels,
global economic advisor for Pacific Investment Management. "We are
only one major adverse shock away from a serious deflationary
scare."
St. Louis Fed President James Bullard, a non-voting member of
the central bank's interest-rate setting group, will give a talk on
the U.S. economy and monetary policy to the Illinois Bankers
Association at 11:15 a.m. Eastern. Cleveland Fed President Loretta
Mester, also a non-voter, will appear for a luncheon speech at
12:40 p.m. Fed Gov. Jerome Powell will give remarks at the Chicago
Fed symposium on regulation at 2:15 p.m. but is not expected to
talk about monetary policy.
There have been some signs that the Fed's push to tighten
monetary conditions lacks unanimous support among the Federal Open
Market Committee. Earlier this week, Chicago Fed President Charles
Evans, a voter, backed off the need for the Fed to hike again this
year, though he hedged his remarks by saying the economy was
performing "quite well."
The Bank of England has faced increasing discord on whether it
should tighten monetary policy to cool the economy as inflation
rises and the pound weakens. Kristin Forbes, a retiring member of
the U.K.'s monetary policy-setting group, said her fellow committee
members were "more hesitant to 'take away the punch bowl' and make
the difficult decisions on inflation." U.K. inflation currently is
approaching close to 3%.
The policy-sensitive 2-year U.K government bond touched an
8-month high of 0.257% in early morning trade Friday. Elsewhere,
the 10-year German bond, or the bund was steady at 0.255%.
On the data front, reports were mixed. A "flash" reading of
manufacturing purchasing managers index fell to a nine-month low in
June
(http://www.marketwatch.com/story/initial-manufacturing-pmi-falls-to-9-month-low-in-june-2017-06-23).
The IHS Markit manufacturing index fell to a reading of 52.1 in
June from 52.7 in May, a reading that still shows improving
conditions as it's above the 50 mark. In a separate report,
new-home sales were running at a seasonally adjusted annual rate of
610,000 in May, as past months' readings were revised up.
As for the broader economy, existing home sales beat
expectations for the month, one bright spot in economic data as
recent numbers have underperformed consensus expectations. The
economy created 138,000 jobs in May compared to the expected
185,000, according to nonfarm payrolls data.
(END) Dow Jones Newswires
June 23, 2017 11:08 ET (15:08 GMT)
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