BOND REPORT: Treasury Yields End Higher As Deutsche Bank Worries Subside
01 October 2016 - 6:53AM
Dow Jones News
By Ellie Ismailidou, MarketWatch
Yields rose in September for the second month in a row
Treasury yields rose in September for a second-straight month,
logging the largest two-month gain since November 2015, on growing
market expectations that the Federal Reserve could raise interest
rates by the end of the year.
On Friday, yields reversed an early decline to jump by the most
in over two weeks, as Wall Street attempted to move past worries
about the financial health of Deutsche Bank AG, which has unsettled
global markets over the past several days, pushing Treasury yields
to a three-week low.
As U.S. stocks staged a rebound from Thursday's sharp losses
(http://www.marketwatch.com/story/us-stock-futures-edge-lower-as-fears-over-deutsche-bank-persist-2016-09-30)and
oil prices tipped higher, selling pressures mounted in the Treasury
market, pushing prices lower and yields, which move in the opposite
direction, higher.
On balance, the yield on the benchmark 10-year Treasury note
erased an earlier decline to end 4.8 basis point higher at 1.605%.
Over the week, the benchmark yield fell by 1 basis point but over
the month it gained 3.7 basis points. One basis point is equal to
one-hundredth of a percentage point.
The yield on the two-year Treasury note , which is the most
sensitive to rate changes, gained 1.8 basis point on Friday to
0.764%. The yield on the 2-year note gained 1 basis point over the
week but lost 3 over the month of September.
And the yield on the 30-year Treasury bond , which is the most
sensitive to long-term growth and inflation expectations, on Friday
added 5.8 basis points to 2.332%. The so-called long bond lost 0.5
basis point over the week but gained 10.2 over the month.
In Europe, the yield on Germany's 10-year bond known as the
bund, inched higher by 0.1 basis point to negative 0.118%,
according to Tradeweb.
For the past several days, investors. have been trying to gauge
whether Deutsche Bank's(DBK.XE)(DBK.XE) financial woes could turn
into a systemic problem for financial institutions in Europe and
the U.S., potentially forcing the Fed to stand pat on interest
rates in its coming meetings.
Read: Deutsche Bank crisis threatens to roil global markets
(http://www.marketwatch.com/story/a-crisis-in-european-banks-threatens-to-roil-global-markets-2016-09-28)
(http://www.marketwatch.com/story/a-crisis-in-european-banks-threatens-to-roil-global-markets-2016-09-28)"If
there was one reason for the Fed not to move, that would be it. But
we're not there yet," said Dan Heckman senior fixed-income
strategist at U.S. Bank.
The German bank's U.S.-listed shares (DBK.XE) rebounded from
Thursday's sharp selloff on Friday as reports
(http://www.marketwatch.com/story/deutsche-bank-us-shares-surge-13-on-speculation-of-lower-doj-settlement-2016-09-30)continued
to circulate that the bank may be able to negotiate a less-onerous
settlement with the Justice Department than the $14-billion figure
being discussed, according to a report from The Wall Street Journal
two weeks ago.
A day earlier, a global flight to quality was sparked after a
report that some of the lender's largest clients were pulling cash
(http://www.marketwatch.com/story/fearful-clients-pull-billions-of-dollars-out-of-deutsche-bank-2016-09-30)
and securities or dialing back trading activity through the
bank.
Meanwhile, on the U.S. economic front, consumer spending was
barely changed
(http://www.marketwatch.com/story/consumer-spending-softens-in-august-2016-09-30)in
August as lower sales of new cars and trucks offset an increase in
services such as education and health care.
And U.S. inflation as measured by the PCE index, the Federal
Reserve's preferred inflation barometer, increased 1% in the 12
months ended in August while the annual rate of core inflation,
which strips out the volatile food and energy categories, edged up
to 1.7%, the Commerce Department said
(http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm).
Inflation is still running below the 2% target desired by the
Federal Reserve, one reason the central bank has held off on
raising interest rates. Still, the Fed is expected to boost a key
lending rate before the end of the year.
"There is little reason to think core inflation will rise much
further in the months ahead, however, which suggests that the Fed
will likely hold on until December before raising interest rates,"
said Steve Murphy, U.S. economist at Capital Economics, in an email
after the release.
(END) Dow Jones Newswires
September 30, 2016 16:38 ET (20:38 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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