U.S. Government Bonds Gain as Oil Falls
November 13 2018 - 5:24PM
Dow Jones News
By Daniel Kruger
U.S. government bond prices rose Tuesday as oil prices continued
to decline, increasing appetite for the relative safety of
sovereign debt.
The yield on the benchmark 10-year Treasury note fell to 3.145%
from 3.189% Friday. After reaching a fresh seven-year high
Thursday, the yield has had its biggest two-day decline in three
months.
Yields, which decline when bond prices rise, fell Tuesday as
U.S. oil prices declined for a 12th consecutive day, dropping by
the largest dollar amount in more than three years to less than $56
a barrel. Oil has declined by almost 15% this month, and is 27% off
its 2018 peak.
Oil's fall has led investors to scale back their near-term
expectations for inflation. Stable consumer prices support the
purchasing power of bonds' fixed interest payments and principal
payments.
"It certainly means we're going to see headline inflation
heading toward zero over the next couple of months," said Donald
Ellenberger, head of multiasset strategies at Federated Investors
Inc.
The broader economic effect of lower oil prices is difficult for
investors to assess because the commodity has an important role
that affects consumption, disposable income, employment and
inflation, Mr. Ellenberger said.
Because the Federal Reserve uses less volatile measures of
consumer prices to gauge the effect of inflation, it is unlikely
that recent declines in oil will affect monetary policy in the near
term. Policy makers are widely seen as planning to raise interest
rates at their next meeting in December.
Yields started the day lower as U.S. investors returned from the
Veterans Day holiday to confront a stock market that has struggled
to rebound following a weak performance in October.
Warnings from suppliers about demand for Apple's iPhones, along
with uncertainty about the prospects for General Electric,
bolstered demand for bonds by increasing concerns about demand in
the global economy. Goldman Sachs shares, meanwhile, suffered their
worst loss since November 2011 on Monday, pushing some investors
toward safer assets.
"Some of the bellwether stocks that people end up watching --
Apple, Goldman and GE -- certainly have put undue pressure on
stocks," said Thomas di Galoma, a managing director and head of
Treasury trading at Seaport Global Holdings. "Conversely, what
you're getting is a flight to quality in bonds because of it."
Geopolitical concerns in Europe have also boosted demand for
bonds, analysts said. Those concerns include the slow pace of
Brexit talks between the U.K. and the European Union, along with
the sparring between Italian officials and the EU over Italy's
desire to run larger budget deficits than allowed by the group.
Write to Daniel Kruger at Daniel.Kruger@wsj.com
(END) Dow Jones Newswires
November 13, 2018 17:09 ET (22:09 GMT)
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