Treasurys Pull Back After Wednesday's Rally
15 December 2017 - 3:35AM
Dow Jones News
By Sam Goldfarb
U.S. government bonds pulled back Thursday, retracing some of
their gains from Wednesday as investors booked profits and
responded to strong economic data on both sides of the
Atlantic.
In recent trading, the yield on the benchmark 10-year Treasury
note was 2.381%, compared with 2.353% Wednesday.
Yields, which rise when bond prices fall, climbed overnight as
fresh data pointed to economic strength in the eurozone. The
composite Purchasing Managers Index rose to its highest level in
almost seven years, led by an acceleration of activity among
factories.
Bond prices fell further after the Commerce Department said that
spending at stores, online-shopping websites and restaurants rose
0.8% in November from the prior month. That was above the 0.3%
increase anticipated by economists surveyed by The Wall Street
Journal.
Bond prices tend to decline on positive economic news because
faster economic growth can lead to higher inflation, which is a
main threat to government bonds, chipping away at the purchasing
power of their fixed returns.
At the same time, inflation has lagged behind other data this
year, ensuring strong demand for long-term Treasurys. On Wednesday,
the Labor Department reported that, excluding volatile categories
of food and energy, the consumer-price index rose just 0.1% in
November from the previous month, below economists' estimates for a
0.2% increase.
In recent days, there has been "a lot of running in place, but
there really haven't been that many surprises," said Matt Freund,
co-chief investment officer and head of fixed-income strategies at
Calamos Investments.
The Federal Reserve on Wednesday said it would raise its
benchmark federal-funds rate by a quarter percentage point. That
move, though, was widely expected, and the central bank signaled it
would continue on its current path of gradual rate increases.
Similarly, the European Central Bank on Thursday lifted its
forecast for economic growth but made no changes to interest rates
or its bond-buying program, which is set to remain in place until
September 2018.
Both the Fed and the ECB delivered messages that were "right
down the middle" of investors' expectations, Mr. Freund said.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
December 14, 2017 11:20 ET (16:20 GMT)
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