BOND REPORT: Tresury Yields Edge Up From 4-week Low On Equities Rally
20 May 2017 - 1:26AM
Dow Jones News
By Sunny Oh
Treasurys continue to linger below 2.30%
Treasury yields extended their rise on Friday after a surge in
equities more than offset New York Fed President James Bullard's
comments suggesting the Fed could pull back on its "aggressive"
monetary tightening schedule in light of weak economic data.
The 10-year Treasury note added 2.6 basis points to 2.255%. Bond
prices move inversely to yields; one basis point is one hundredth
of a percentage point. The 2-year Treasury note gained 0.4 basis
point to 1.274%, while the 30-year note, or the long bond, rose 1.5
basis point to 2.916%.
Treasury yields followed stocks higher as a brief quiet settled
on the White House, with the S&P 500 index climbing 0.65% to
2381 points on Friday. Yields tend to follow stocks because stocks
and bonds represent opposite poles on a continuum of risk. So if
investors are bullish on economic growth, stocks will rally at the
expense of bonds. Albeit, prices for both assets have recently
moved alongside each other.
But in the past week, bonds have mostly rallied as analysts feel
controversy swirling around the White House may prevent Trump from
delivering on his infrastructure bill and other pro-growth
policies, which would buoy inflation and hurt the value of bond's
fixed payments. President Donald Trump is fighting back against
allegations that members of his election campaign had various
interactions with the Kremlin and its associates
(http://www.marketwatch.com/story/trump-campaign-had-at-least-18-undisclosed-contacts-with-russia-report-2017-05-18).
"Markets are repricing as the odds of a tax reform bill are
falling. They are surmising that the Trump economic agenda is now
injured. They see Congress as likely to be bogged down in
investigations and hearings. They see businesspersons and investors
going to the sidelines because they do not know what the new rules
will be," said David Kotok, chief investment officer of Cumberland
Advisors, in a note.
Traders turned their focus to two Fed speakers on the docket to
see if the Federal Reserve will hike rates in June, once a
near-certainty, as turmoil in Washington, D.C. looks to jeopardize
expectations of two more rate hikes this year. The Chicago
Mercantile Exchange's FedWatch tool
(http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html)shows
bond investors expect a 73.8% chance of June rate hike after 87.7%
in May 10. Higher rates reduce the attraction of holding bonds as
existing debt needs to be discounted to match the higher returns of
newer issuance.
St. Louis Fed President James Bullard, a non-voting member of
the central bank, cast doubt on two further rates hikes this year
as the current timetable for monetary tightening was "overly
aggressive relative to actual incoming data on U.S. macroeconomic
performance." But Treasury yields appeared to ignore his
remarks.
See: Fed's Bullard questions need for June rate hike
(http://www.marketwatch.com/story/feds-bullard-questions-need-for-june-rate-hike-2017-05-19)
San Francisco Fed President John Williams, also a non-voting
member of the central bank, will give a talk to El Camino High
School students at 1:40 p.m. Eastern. Williams, a hawkish member of
the Fed, has said he wants to taper the balance sheet this
year.
"It will be interesting to see if his views have changed
recently in response to the turbulence in Washington or if he
changes things around due to his audience being high-school
students," said Thomas Simons, a senior money market economist, in
a note.
(END) Dow Jones Newswires
May 19, 2017 11:11 ET (15:11 GMT)
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