CME CME Group Inc

By Sam Goldfarb 

U.S. government bond prices pared early gains on Wednesday, as investors regained some of their appetite for riskier assets after fleeing to haven debt on Tuesday and overnight.

In recent trading, the yield on the benchmark 10-year Treasury note was 1.817%, according to Tradeweb, down from 1.822% Tuesday but up from 1.790% earlier in the day. Yields rise as bond prices fall.

Government bonds sold off sharply last month in part because of improved global economic data, rising inflation expectations, concern about less bond buying by major central banks and discussion about increased spending from governments that would require more debt issuance.

Bonds, though, have rebounded this week, as investors turned their attention to next week's U.S. presidential election, which is looking increasingly like a close contest between the Democratic nominee Hillary Clinton and Republican nominee Donald Trump.

Although Mrs. Clinton was previously expected to win handily, polls have tightened recently, forcing investors to price in the chances of a victory by Mr. Trump, who is widely viewed as the candidate more likely to bring uncertainty to government policies.

Despite a solid report on U.S. manufacturing on Tuesday, uncertainty caused by the election "is counteracting any bright spots that we're seeing in the economy," said Jody Lurie, director in the fixed-income strategy and research department at Janney Montgomery Scott LLC in Philadelphia.

Also providing a boost to bonds has been the recent drop in oil prices, which has weighed on stock prices and tempered the recent increase in inflation expectations, analysts said.

Later Wednesday, the Federal Reserve is widely expected to leave interest rates unchanged at the conclusion of a two-day policy meeting but send strong signals that it is prepared to move in December for the first time since it raised rates at the end of last year.

Fed-funds futures, which are used to speculate on central bank policy, showed investors and traders see just a 7% chance of a rate increase on Wednesday but a 74% chance of an increase by the end of December, according to CME Group.

Investors are also looking ahead to Friday's nonfarm payrolls report, which could further bolster the odds of a December rate rise if it shows continued strength in the labor market.

A private survey showed on Wednesday that businesses across the country added 147,000 workers in October, the smallest increase since May. However, the September total was revised up to 202,000 from 154,000.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

November 02, 2016 10:52 ET (14:52 GMT)

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