U.S. Bonds Waver on Potential for Less Accommodative Central Bank Policies
April 25 2016 - 3:43PM
Dow Jones News
By Sam Goldfarb
U.S. government bonds wavered Monday, following their biggest
weekly loss of 2016, as investors continued to weigh the
possibility of less accommodative central bank policies.
Though up and down throughout the day, the yield on the
benchmark 10-year Treasury note ultimately closed higher than
Friday despite declines in oil prices and stocks, signaling a shift
in investor sentiment beyond just a short-term swing in risk
appetite.
Yields rise when bond prices fall.
The Treasury market appeared to take cues from Europe, where
bond yields continued to rise following European Central Bank
President Mario Draghi's remarks last week that gave a nod to
improving financial conditions.
With the ECB and other central banks seemingly reaching the
limits of their stimulus efforts, European bonds "have sold off a
little bit and Treasurys in sympathy have sold off with it" said
Guy Haselmann, head of US interest rate strategy at Bank of Nova
Scotia in New York.
Also weighing on Treasurys are two bond auctions this week: a
$34 billion sale of five-year U.S. Treasury notes Tuesday and a $28
billion auction of seven-year notes Thursday, analysts said.
The yield on the 10-year Treasury note settled at 1.902%,
compared with 1.888% Friday. The yield on the 10-year German bond
closed at 0.267%, compared with 0.228% Friday.
The yield on the 10-year Treasury note rose by 0.135 percentage
point last week, reflecting optimism over the economy and pessimism
over the value of bonds.
In addition to higher oil prices, which investors have taken as
a good sign for the global economy, market moves have been
influenced by better news out of China, including easing capital
outflow from the country thanks to a weaker dollar and new data
that suggests it isn't headed toward a sharp slowdown.
Federal Reserve officials aren't expected to raise interest
rates at a policy meeting this week. But they could add to the
pressure on bonds if they also take note of improving financial
conditions, raising expectations for a rate increase at one of
their next meetings, some analysts say. The Fed will release its
policy statement Wednesday at the conclusion of a two-day
meeting.
Fed funds futures, used by investors and traders to place bets
on central bank policy, show only a 23% likelihood of an
interest-rate increase in June but a 37% likelihood of an increase
in July, which is up from 32% a month ago, according to data from
CME Group.
Despite recent developments, sluggish global growth outlook and
contained inflation continue to draw buyers into Treasury debt,
which offers one of the most attractive yields among government
bond markets in the developed world. A stronger dollar this year
has increased the returns for investors in Asia and Europe who are
struggling to obtain high-quality bonds that offer safety and
decent income in a low yield world.
COUPON ISSUE Price CHANGE YIELD CHANGE
7/8% 2-year 100 3/32 dn 1/32 0.834% +1.2BPS
7/8% 3-year 99 19/32 dn 1/32 1.014% +1.4BPS
1 1/4% 5-year 99 14/32 dn 2/32 1.370% +1.3BPS
1 1/2% 7-year 98 26/32 dn 3/32 1.685% +1.5BPS
1 5/8% 10-year 97 17/32 dn 4/32 1.902% +1.4BPS
2 1/2% 30-year 95 14/32 dn 14/32 2.724% +2.1BPS
2-10-Yr Yield Spread: +106.8BPS vs + 106.6BPS
Source: Tradeweb/WSJ Market Data Group
Write to Sam Goldfarb at Sam.Goldfarb@wsj.com
(END) Dow Jones Newswires
April 25, 2016 16:28 ET (20:28 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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