BOND REPORT: Treasurys See A Lift After Humdrum Inflation Report And White House Turmoil

Date : 03/13/2018 @ 9:03PM
Source : Dow Jones News

BOND REPORT: Treasurys See A Lift After Humdrum Inflation Report And White House Turmoil

By Mark DeCambre, MarketWatch

U.S. government bonds saw buying on Tuesday, pulling yields lower, after Secretary of State Rex Tillerson was ousted from the White House.

Plus, the inflation report matched expectations, easing concerns that the Federal Reserve would speed up its pace of rate hikes from a widely expected three to a more aggressive four.

How are Treasurys performing?

The 10-year Treasury note yield fell 2.2 basis points to 2.848%, according to WSJ Market Data Group.

The two-year note yield , the maturity that is the most sensitive to shifting inflation expectations, was mostly unchanged at 2.262%.

The 30-year bond rate , known as the long bond, was down by 2.8 basis points to 3.101%.

Bond prices fall as yields rise, and vice versa.

What's driving government bond trading?

Tillerson was replaced by CIA Director Mike Pompeo (http://www.marketwatch.com/story/trump-says-he-will-replace-tillerson-with-pompeo-as-secretary-of-state-2018-03-13), highlighting the rapid turnover and climate of turmoil surrounding the White House. The news helped add to demand for haven investments like Treasurys as investors saw a heightened risk of geopolitical flare-ups without the stabilizing influence of Tillerson.

Yields fell earlier after the consumer-price index in February rose 0.2%, in line with MarketWatch economists' expectations. The core gauge, stripping out for volatile food and energy prices, was up by 0.2%. The humdrum data could become another piece of evidence keeping the central bank from pushing for a more aggressive pace of rate hikes.

See: Consumer inflation less threatening in February, CPI shows (http://www.marketwatch.com/story/consumer-inflation-less-threatening-in-february-cpi-shows-2018-03-13)

Inflation readings have become a closely watched gauge of the state of the market's health over the past several weeks because rising prices and inflation can erode a bond's fixed value. Percolating inflation can also prompt the U.S. central bank to lift interest rates more aggressively than the three times that traders and strategists have penciled in for 2018.

Previously, inflation has been running below the Fed's 2% annual target, which has helped support buying in government paper, keeping a lid on yield gains.

Concerns about tariffs signed by President Donald Trump continue to be a concern for the broader market, with the threat that they might spark global trade wars and impede the U.S. economy in its ninth year of expansion.

Read:What to watch in the CPI report (http://www.marketwatch.com/story/what-to-watch-in-the-cpi-report-2018-03-12)

(http://www.marketwatch.com/story/what-to-watch-in-the-cpi-report-2018-03-12)And: The overheating economy could crash in 2019, this top forecaster says (http://www.marketwatch.com/story/the-overheating-economy-could-crash-in-2019-this-top-forecaster-says-2018-03-10)

What are strategists and traders saying?

"Tillerson was walking wounded in the administration, but investors saw one source of global stability along with Cohn's domestic influence at the National Economic Council. Last summer's White House turnover brought in Kelly as chief of staff, a source of relief for markets. This winter's carousel ... not so much in terms of new arrivals and potential appointments," said Jim Vogel, interest-rate strategist for FTN Financial.

Which other assets are in focus?

The German 10-year government bond yield was at 0.619% on Tuesday compared with 0.631% late Monday. German bonds, also known as bunds, are often viewed as a proxy for the health of the eurozone.

 

(END) Dow Jones Newswires

March 13, 2018 16:48 ET (20:48 GMT)

Copyright (c) 2018 Dow Jones & Company, Inc.


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