BOND REPORT: 2-year Treasury Yield Holds Around Highest Level Since 2008
September 21 2017 - 9:41AM
Dow Jones News
By Mark DeCambre, MarketWatch
10-year Treasury yield has climbed 12 basis points so far in
September
U.S. Treasury prices were little changed Thursday, leaving the
2-year Treasury yield near an almost nine-year high after the
Federal Reserve on Wednesday indicated that it still plans to
deliver another rate increase in 2017.
The U.S. central bank kept its benchmark interest rate unchanged
between 1% to 1.25%, but said it would begin its historic unwind of
a more than $4 trillion balance sheet in October, as expected,
solidifying a recent bond selloff, driving yields higher in recent
days.
See:How the 'great central bank unwind' could ignite the next
financial crisis
(http://www.marketwatch.com/story/how-the-great-central-bank-unwind-could-ignite-the-next-financial-crisis-2017-09-20)
The 2-year Treasury note yield , the most sensitive to Fed
policy shifts, was little changed at 1.430%, compared with 1.442%
late Wednesday in New York, and after hitting its highest level
since Nov. 3, 2008
(http://www.marketwatch.com/story/treasury-yields-mostly-unchanged-ahead-of-fed-policy-announcement-2017-09-20),
according to WSJ Market Data Group. The 10-year Treasury note yield
was at 2.261%, versus 2.276%, holding on to its highest level since
Aug. 8. The 30-year bond yield traded 0.5 basis point lower at
2.804%, compared with 2.821% in the prior session.
Bond prices move in the opposite direction of yields.
So far this month, the 2-year Treasury yield has climbed more
than 10 basis points, the benchmark 10-year note yield has tacked
on more than 12 basis points, while the yield on the 30-year bond
has advanced about 6 basis points, thus far in September.
Twelve out of the 16 members of the policy-setting Federal Open
Market Committee indicated they expected to deliver a rate
increase--the third of the year--by the end of 2017.
Wall Street expectations for a further rate-increase jumped to
about 73% probability in December, compared with 52% chance last
week, CME Group data show
(http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html).
The Fed's plan to tighten policy comes despite subdued inflation
that has been running below the central bank's annual 2%
target.
Research strategists at UniCredit said they expect the Fed's
policy initiative, which point to three rate increases in 2018, two
in 2019 and one in 2020, to result in a so-called bear flattener,
in which short-term yields rise faster than longer maturities.
"We expect market-based rate-hike expectations to adjust
further, accompanied by a further increase in capital market rates.
The reduced dots for 2019 and beyond suggest that the U.S. Treasury
curve will have more room to bear-flatten, particularly in 5-30s
[Treasury maturities]," the bank wrote in a Thursday research
note.
In a news conference after the policy decision, Yellen
acknowledged the inflation shortfall had proved more persistent and
inexplicable but said the Fed was cognizant of the risk of raising
rates too slowly and letting the economy overheat or too quickly
and pushing it into recession. "I can't say I can easily point to a
sufficient set of factors that explain this year why inflation has
been as low," she said.
The equity market, which has benefited from the ultralow-rate
regime bounced around but finished at all-time highs, with the Dow
Jones Industrial Average and the S&P 500 booking their 42nd and
37th record of 2017
(http://www.marketwatch.com/story/us-stock-futures-in-holding-pattern-as-historic-fed-decision-looms-2017-09-20),
respectively.
Meanwhile, an exchange-traded bond fund, the iShares 20+ Year
Treasury Bond ETF(TLT), was poised to trade higher early
Thursday.
Reaction to stronger-than-expected economic data on Thursday was
minimal. Initial weekly claims
(http://www.marketwatch.com/story/jobless-claims-subside-in-mid-september-despite-hurricane-damage-2017-09-21)fell
sharply last week despite destructive hurricanes in Texas and
Florida. Meanwhile, manufacturing conditions in the mid-Atlantic
region
(http://www.marketwatch.com/story/philly-fed-manufacturing-index-accelerates-in-september-2017-09-21)
accelerated in September and suggest an economy picking up
steam.
At 10 a.m. Eastern, a reading on leading economic indicators for
August is due.
In Europe, the 10-year German bond yield was at 0.457%, compared
with 0.440% on Thursday.
(END) Dow Jones Newswires
September 21, 2017 09:26 ET (13:26 GMT)
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