BOND REPORT: Treasury Selloff Pauses After 10-year Yield Hits 7-year Peak
17 May 2018 - 1:06AM
Dow Jones News
By William Watts and Mark DeCambre, MarketWatch
Treasury prices edged higher Wednesday, nudging yields lower, as
selling pressure abated alongside rising concerns over the fate of
a planned summit between the U.S. and North Korea and jitters over
the policy agenda of a putative new government in Italy.
A day earlier, the yield on the 10-year Treasury note hit a
nearly seven-year high.
How are Treasurys performing?
The 10-year Treasury note yield edged 0.3 basis point lower to
3.073%, a day after registering the largest single-day climb since
March 1, according to WSJ Market Data Group. The yield hit an
intraday peak above 3.09% Tuesday. Yields and debt prices move in
opposite directions.
The 30-year bond yield fell 1.4 basis points to 3.193%, after
the long bond marked its largest daily yield climb since Feb. 2 in
the previous session. The short-dated 2-year note yield ,
meanwhile, edged 0.8 basis point lower to 2.577%.
What's driving the market?
Investors watched events in Asia, with North Korea's threat to
pull out of a summit planned for next month with the U.S. sparking
worries that a brief detente between Pyongyang and Washington may
be near an end.
Read:North Korea threatens to call off U.S. summit if Washington
insists on denuclearization
(http://www.marketwatch.com/story/north-korea-threatens-to-call-off-us-summit-if-washington-insists-on-denuclearization-2018-05-16)
Italian government bond yields jumped after a report said
antiestablishment parties in talks to form a government would ask
the European Central Bank to write off 250 billion euros ($296
billion) in debt
(http://www.marketwatch.com/story/italian-markets-spooked-as-radical-agenda-from-5-star-league-fuels-fears-of-new-crisis-2018-05-16)
and seek to renegotiate Rome's contribution to the European Union
budget.
While the Treasury selloff paused, the steady climb in
government bond yields has been a focus for fixed-income investors.
Concerns about rising inflation, a factor that can erode a bond's
fixed value, fueled by signs that prices are rising and the Fed may
feel compelled to increase rates twice more in 2018, if not thrice
more, has pressured bond prices lower, and pushed yields up.
Market participants are slowly converging around the idea that
rates may hit 3.5% or 4% at some point this year, with that
expectation underpinned by indicators that support the thesis of an
economy that is on a firm footing.
What are strategists saying?
"The U.S. 10-year yield [temporarily] rose above 3.07% key
resistance, but the test is ongoing," wrote analysts at KBC Bank,
in a Wednesday note. "The same goes for the test of 3.22% in the
30-year yield."
"Treasury yields broke out above late April highs yesterday, and
as seen in monthly charts below, this had even bigger implications
for the longer-term trend channel. No countertrend evidence of
exhaustion was present, so near-term yield pullbacks would
represent a chance to sell Treasurys, expecting higher yields into
late May/early June before any peak," wrote Mark Newton, technical
analyst at Newton Advisors in a Wednesday research note.
What data and Fed speakers are in focus?
Construction on new houses in the U.S. fell 3.7% in April
(http://www.marketwatch.com/story/housing-starts-drop-37-in-april-but-stick-near-11-year-high-2018-05-16),
with the annual rate falling to 1.29 million homes, in line with
forecasts.
Atlanta Federal Reserve President Raphael Bostic was due to
address the economic outlook at Georgia's Augusta Cotton
Exchange.
The Federal Reserve said industrial production rose 0.7% in
April
(http://www.marketwatch.com/story/industrial-output-climbs-07-in-april-2018-05-16),
slightly stronger than Wall Street expectations for a 0.6% rise. A
mix of revisions to the previous two months were net negative but
still saw output grow at a 2.3% rate in the first quarter.
Check out:MarketWatch's Economic Calendar
(http://www.marketwatch.com/economy-politics/calendars/economic)
What are other assets doing?
The yield on the 10-year Italian government bond jumped 12.5
bass points to 2.076% following the report on the potential
coalition government's draft plans to call for debt
forgiveness.
The 10-year German bond yield fell 3.25 basis points to 0616%,
compared with 0.634% in the previous session. The German bond, or
bund, is viewed as the eurozone's risk-free security.
The gap between 10-year German and U.S. yields stands at about
2.46 percentage points, which is around its widest in about three
years.
(END) Dow Jones Newswires
May 16, 2018 10:51 ET (14:51 GMT)
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