Treasurys Extend Gains on Election Uncertainty
November 02 2016 - 3:29PM
Dow Jones News
By Sam Goldfarb
U.S. government bonds continued their recent rally Wednesday,
benefiting from anxiety over the presidential election as the
Federal Reserve stayed on track to raise interest rates in
December.
The Fed, as expected, left interest rates steady at the
conclusion of a two-day policy meeting. But it sent new signals
that it could raise rates next month, pointing to signs that
inflation is rising and saying the case for raising rates "has
continued to strengthen."
In late-afternoon trading, the yield on the benchmark 10-year
Treasury note was 1.799%, compared with 1.822% Tuesday. The yield
on the two-year note, which is highly sensitive to changes in the
Fed's policy outlook, was 0.821%, compared with 0.829% Tuesday.
Yields fall when bond prices rise.
The Fed's decision was "pretty much as expected," said Mary Ann
Hurley, vice president of fixed income trading in Seattle at D.A.
Davidson & Co. "We knew that they were going to punt the ball
into the December meeting, which is what they did do."
Bond yields moved only a little higher after the Fed's
statement, suggesting investors didn't gain much insight into the
direction of monetary policy.
Yields, though, had dropped earlier in the day, as investors
continued to shift money into haven debt amid signs of a tightening
presidential race between the Democratic nominee Hillary Clinton
and Republican nominee Donald Trump.
Although Mrs. Clinton was previously expected to win handily,
polls have tightened recently, forcing investors to price in the
possibility of a victory by Mr. Trump, who is widely viewed as the
candidate more likely to bring uncertainty to government
policies.
Stocks, which fell last month, have come under further pressure,
while bond prices have climbed for three consecutive days after
falling sharply last week.
Government bonds were hit by waves of selling in October in part
because of improved global economic data, rising inflation
expectations, concern about less bond buying by major central banks
and discussion about increased spending from governments that would
require more debt issuance.
The rationale behind higher yields seemed to be supported
earlier this week, when China and the U.S. both reported
encouraging manufacturing data. But uncertainty caused by the
election is now "counteracting any bright spots that we're seeing
in the economy," said Jody Lurie, director in the fixed-income
strategy and research department at Janney Montgomery Scott LLC in
Philadelphia.
Also providing a boost to bonds has been a decline in oil
prices, which has weighed on stock prices and tempered the recent
increase in inflation expectations, analysts said.
Investors are looking ahead to Friday's nonfarm payrolls report,
which could further bolster the odds of a December rate rise if it
shows continued strength in the labor market.
A private survey showed on Wednesday that businesses across the
country added 147,000 workers in October, the smallest increase
since May. However, the September total was raised to 202,000 from
154,000.
Fed-funds futures, which are used to speculate on central bank
policy, showed Wednesday afternoon that investors and traders see a
72% chance of an increase by the conclusion of the Fed's December
meeting, according to CME Group. The odds were 74% Tuesday.
COUPON ISSUE Price CHANGE YIELD CHANGE
3/4% 2-year 99 28/32 up 1/32 0.821% -0.8BPS
1% 3-year 100 3/32 up 1/32 0.968% -1.1BPS
1 1/4% 5-year 99 30/32 up 4/32 1.261% -2.6BPS
1 5/8% 7-year 100 10/32 up 6/32 1.578% -2.8BPS
1 1/2% 10-year 97 11/32 up 7/32 1.799% -2.3BPS
2 1/4% 30-year 93 16/32 up 5/32 2.564% -0.7BPS
2-10-Yr Yield Spread: +97.8BPS Vs + 99.3BPS
Source: Tradeweb/WSJ Market Data Group
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
November 02, 2016 16:14 ET (20:14 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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