By Min Zeng
U.S. Treasury bonds pulled back on Monday as broad price gains
in global stocks sapped demand for haven assets.
Investors piled into equity markets as comments from China's
central bank chief fueled speculation that policy makers in the
world's second largest economy may implement fresh monetary
stimulus.
In recent trading, the yield on the benchmark 10-year Treasury
note was 1.968%, compared with 1.946% on Friday, according to
Tradeweb.
When bond prices fall, their yields rise. The yield has fallen
from 2.173% at the end of 2014, set for a price gain this quarter
ending Tuesday.
The Shanghai Composite posted its biggest gains in more than two
months after People's Bank of China Governor Zhou Xiaochuan over
the weekend indicated that China can ease policy further if
inflation continues to slip.
"The risk on trade is weighing on the bond market," said Larry
Milstein, head of government and agency trading at R.W. Pressprich
& Co. in New York.
Treasury bond prices rallied Friday after a report showed the
U.S. economy grew at a slower pace than economists forecast in the
final quarter of 2014, which bolstered expectations that the Fed
would take its time in raising short-term interest rates this
year.
The nonfarm payrolls report for March is due Friday, the key
datapoint to shape up investors' expectations on the timing of the
first interest-rate increase by the Fed in nearly a decade. The
Fed's next policy meeting is set for April 28-29.
Anxiety has risen over the past two months on whether the Fed is
going to raise rates in June or later this year, which has
generated swings in the bond market. An uncertain growth outlook
overseas, still-subdued inflation and mixed U.S. economic releases
over the past few weeks have complicated the Fed's policy
adjustments.
Higher short-term interest rates could dent the value of
outstanding bonds, as buyers are likely to flock to new bonds
issued at higher yields.
The 10-year yield tumbled to 1.669% on Feb. 2, the lowest
closing level since May 2013 amid worries over the global growth
outlook. It surged to this year's peak of 2.24% on March 6, the
highest level since December, after the nonfarm payrolls report for
February showed strong jobs growth.
Fed Chairwoman Janet Yellen said Friday the timing hinges on how
the economy performs in the months ahead. She said the tightening
cycle this time would be gradual. The Fed last raised interest
rates in 2006. It has kept the fed-funds target rate near zero
since December 2008.
Many investors still see a very low probability for the Fed to
raise rates this summer. The federal-funds futures, used by
investors and traders to place bets on central-bank policy, showed
Monday that the market sees a 6% likelihood of a rate increase in
June, compared with 9% Friday, according to data from CME
Group.
Write to Min Zeng at min.zeng@wsj.com