U.S. Government Bond Prices Fall After Recent Rally
December 11 2018 - 5:04PM
Dow Jones News
By Sam Goldfarb
U.S. government bond prices fell Tuesday as the market showed
signs of settling into a new comfort zone following a monthlong
rally.
The yield on the benchmark 10-year U.S. Treasury note settled at
2.881%, compared with 2.856% Monday. Yields rise when bond prices
fall.
Treasurys have been fairly quiet over the past two trading
sessions, in contrast to the price gains of the preceding four
weeks. Some analysts say yields have may have found a floor for
now, although it's 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. That's a concern spurred by 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.
One factor determining 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
in 2019.
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 16:49 ET (21:49 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.