U.S. Government Bonds Pull Back
26 April 2017 - 2:19AM
Dow Jones News
By Min Zeng
U.S. government bonds pulled back for a second straight session
on Tuesday as demand for haven bonds continued to retreat amid a
rally in stocks.
The Nasdaq rose above 6,000 for the first time Tuesday, a sign
of robust demand for riskier assets that reduces the allure of
haven bonds.
In recent trading, the yield on the benchmark 10-year Treasury
note was 2.307%, according to Tradeweb, compared with 2.275%
Monday. Yields rise as bond prices fall.
Risk appetite has improved following Sunday's first round of
French presidential elections. A mainstream candidate prevailed as
expected by many investors, reducing worries over a potential
France's exit out of the eurozone. This factor continued to boost
sentiment Tuesday.
"Risk on continues," said Larry Milstein, head of government and
agency trading at R.W. Pressprich Co. "Markets were very concerned
going into the first round given how close the top four candidates
were and the risk of two extremist candidates potentially moving on
to the second round." Also hurting bonds: Concerns over a shutdown
of the U.S. federal government have also dialed back after
President Donald Trump signaled willingness to wait longer to
secure funding on his call for a border wall. Congress needs to
pass a resolution this Friday when funding for the federal
government is set to expire.
Higher yields were also driven by some optimism toward Mr.
Trump's updates on his tax plan scheduled Wednesday. The Wall
Street Journal reported Monday afternoon that Mr. Trump has ordered
White House aides to accelerate efforts to draft a tax plan
slashing the corporate rate to 15%.
The 10-year Treasury yield has risen from a five-month low of
2.177% set on April 18. It traded above 2.6% in mid-March.
After a big rise since Mr. Trump won the election in November,
the 10-year Treasury yield has been pulling back over the past
weeks. That shows confidence is waning toward his fiscal agenda.
Selling Treasurys has been one of the popular trades for investors
to bet that large fiscal stimulus would lead to stronger economic
growth and higher inflation.
Some traders say the yield is unlikely to revisit 2.6% any time
soon given the uncertainty surrounding the fiscal policy and
economic growth outlook.
U.S. economic data have flagged some caution over the growth
momentum. Tuesday, new home sales rose by 5.8%, a sign of a robust
housing market. But a monthly gauge of consumer confidence fell to
120.3 from 124.9 in March.
Economists polled by The Wall Street Journal expect the U.S.
government to report Friday that the U.S. economy grew at 1% during
the first quarter of the year, down from 2.1% during the last
quarter of 2016.
Another focus for bond investors this week is the European
Central Bank's policy meeting Thursday. Some analysts say reduced
political risk in France may allow the ECB to reduce monetary
stimulus earlier than many investors expect, especially with data
out of the eurozone showing improvement. This may drive investors
to sell eurozone government bonds such as German bunds and the
selling pressure could ripple into Treasury debt, traders say.
A $26 billion sale of two-year notes is due at 1 p.m. Tuesday,
the first leg of this week's auctions that focus on shorter-term
maturities.
Write to Min Zeng at min.zeng@wsj.com
(END) Dow Jones Newswires
April 25, 2017 12:04 ET (16:04 GMT)
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