U.S. Government Bonds Strengthen After Recent Rally
21 March 2017 - 2:53AM
Dow Jones News
By Min Zeng
U.S. government bonds strengthened on Monday following last
week's price rally as the Federal Reserve soothed worries over a
big rise in yields.
In recent trading, the yield on the benchmark 10-year Treasury
note was 2.484%, according to Tradeweb, compared with 2.5% Friday.
Yields fall as bond prices rise.
The 10-year yield rose above 2.6% earlier this month and reached
a two-year high as investors anticipated the Federal Reserve would
raise short-term interest rates. The Fed did act last Wednesday,
but its signal of a gradual path of tightening policy has eased
worries over a swift rise, driving buyers back to the bond
market.
Derivative markets suggest investors are expecting bond-market
fluctuation to stay contained. The Bank of America-Merrill Lynch
MOVE Index fell to 60.4397 on March 16, the lowest since October.
The index tracks trading in derivatives on Treasury bonds and
measures the size of expected government-bond price swings over a
certain period.
Some traders expect the 10-year yield to trade between 2.4% and
2.6%.
"The bond market seems to be stuck here," said Anthony Cronin, a
Treasury bond trader at Société Générale SA. "The next rate hike is
at least a few months away still."
Fed-funds futures, used by hedge funds and money managers to bet
on the Fed's policy outlook, priced in 54% that the Fed would raise
rates again at its June meeting, according to CME Group. The odds
were 58% last Friday.
A number of Fed officials are scheduled to speak this week,
including Fed Chairwoman Janet Yellen on Thursday.
Some analysts caution that markets may be complacent to the risk
of a more aggressive tightening path from the Fed, a case that
would rattle the bond market and cause a sharp rise in yields.
Even as inflation data have pointed to upticks in consumer
prices, the latest University of Michigan consumer sentiment survey
Friday showed inflation expectations over the next five to 10 years
hit a record low earlier this month. The survey bolstered demand
for Treasury bonds Friday.
Inflation is the big threat to long-term government bonds.
Higher consumer prices reduce the real purchasing power from bond
investments.
Wagers on higher bond yields, or short bets, have pulled back
lately. When investors dial back shorts, they return to the bond
market as buyers, which helps send yields lower.
Hedge funds and money managers accumulated a net $89 billion
worth of shorts for the week that ended March 14, a day before the
Fed's rate decision, via Treasury futures, according to TD
Securities. That was down from $93.9 billion a week earlier. The
net shorts reached $100.7 billion in early January, the highest
since 2008.
Write to Min Zeng at min.zeng@wsj.com
(END) Dow Jones Newswires
March 20, 2017 11:38 ET (15:38 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.