BOND REPORT: Treasury Yields Bounce Back After Reports Of Bannon Departure From White House
August 18 2017 - 01:10PM
Dow Jones News
By Sunny Oh
President Donald Trump removes Steve Bannon from position as
White House Chief Strategist
Treasury yields climbed back into positive territory on
Wednesday afternoon trade after reports that President Donald Trump
had forced out Steve Bannon as White House chief strategist.
Market analysts said Bannon's departure could offer relief to a
turmoil-ridden White House, which has had to recently contend with
the disbanding of Trump's business advisory councils after Trump
stirred up controversy when he responded to the violence in
Charlottesville, Va.
The 10-year benchmark Treasury yield was up by 1.9 basis point
to 2.204%, while the 30-year Treasury bond's yield ticked higher by
1 basis point to 2.785%. The 2-year government bond's yield rose by
less than a basis point to 1.305%. Bond prices move inversely to
yields.
"There might be relief that the more fractious elements of the
White house is contained. To the extent that this might look like a
more Republican administration, this could soothe a lot of nerves,"
said Aaron Kohli, fixed-income strategist for BMO Capital
Markets.
Moreover, his departure could lend strength to those who favor a
more globalized economy, instead of the isolationist, America-first
policies that economists fear will hurt growth expectations. It
could also help avert a trade war.
"He favors confrontation with China, he is economically
nationalistic. Whether you agree with that or not, replacing him
will probably lead to less conflict against trading partners,"
Kohli said.
Treasury yields were already heading higher before the report
after data showed U.S. consumer sentiment index rose to its highest
level since January. The University of Michigan consumer-sentiment
survey rose to 97.6 in August from 93.4 in July
(http://www.marketwatch.com/story/americans-more-gung-ho-about-economy-in-august-consumer-sentiment-survey-shows-2017-08-18)and
comes on the heels of retail sales that notched a 7-month high
(http://www.marketwatch.com/story/us-retail-sales-soar-in-july-to-7-month-high-2017-08-15).
The 2-year Treasury yield, sensitive to shifts in Fed policy,
was on track for end the week roughly where it started, after the
Fed issued a set of minutes that were largely interpreted as dovish
by market participants. The minutes from the Federal Reserve's July
policy meeting showed central bankers were finally beginning to
concede that the weakness in inflation might not be transitory,
suggesting a more gradual pace of monetary tightening. Consumer
prices have remained soft for five straight months since March
(http://www.marketwatch.com/story/us-consumer-inflation-remains-soft-in-july-cpi-shows-2017-08-11).
U.S. bond markets were relatively volatile during the week amid
political turmoil in the White House and a terrorist attack in
Spain.
Much of the week's trading was driven by sharp swings in
political uncertainty as a standoff between North Korea and
President Donald Trump's administration abated only to give way to
the dissolution of Trump's business advisory councils. Support for
Trump among his own party has also appeared to waver as several
Republican senators and congressmen have condemned Trump's remarks
following protests in Charlottesville, Va.
"Enough key players in Congress are stepping away from the
shadow cast by the Trump presidency that financial markets are
marking down prospects of this president being able to achieve any
constructive objectives for tax reform, infrastructure spending or
health care reform," said Carl Weinberg, chief economist for High
Frequency Economics, in a note to clients.
Bond yields dropped and equities sold off on Thursday in
response to a terrorist attack in Barcelona, which left at least 14
people dead and more than a 100 injured after two vans plowed into
a crowd in a popular tourist spot.
This increased trading activity in European bond markets on
Friday as they attracted a rush of flows from investors fleeing
equities into the perceived safety of sovereign paper. The German
10-year government bond's yield fell 1.2 basis point to 0.413%, as
the Stoxx Europe 600 index fell 0.7% to 3041.7.
For next week, market participants would gear up for the Federal
Reserve symposium in Jackson Hole, Wyo. Both Fed Chairwoman Janet
Yellen and European Central Bank President Mario Draghi will attend
the get-together. But sources at the ECB said Draghi wouldn't
announce a major policy shift as previous rumors had suggested,
even as the eurozone's economy makes a broad, steady recovery
(http://www.marketwatch.com/story/eurozone-recovery-aided-by-dutch-surge-2017-08-16).
(END) Dow Jones Newswires
August 18, 2017 13:55 ET (17:55 GMT)
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