U.S. Government Bonds Extend Rally
February 24 2017 - 3:12PM
Dow Jones News
By Sam Goldfarb
A rally in U.S. government bonds picked up momentum Friday,
sending the yield on the 10-year note to its lowest close in almost
three months, amid growing frustration among investors at the slow
pace of fiscal policy-making in Washington.
Expectations among investors for more expansive fiscal policies
and tighter monetary policy helped cause a selloff in bonds at the
end of last year and remain widely held this year. But they have
been tempered in recent months by indications that the Federal
Reserve and Congress won't move as quickly as some investors had
anticipated in the immediate aftermath of November's election.
Since settling at 2.502% on Feb. 15, the 10-year yield has
declined in five out of the past six trading sessions. It fell to
2.317% Friday from 2.388% Thursday, marking its lowest close since
Nov. 29, when it settled at 2.305%.
Yields fall when bond prices rise.
Fed minutes released Wednesday afternoon showed many
participants believed that a rate increase could come "fairly
soon," but only a few participants felt it is likely to occur at
"an upcoming meeting." Meanwhile, investors are still waiting for
more details on a tax overhaul plan that President Donald Trump
appeared to promise earlier this month.
"There is definitely concern that we don't have anything more in
specifics coming out of Trump," said Mary Ann Hurley, vice
president of fixed income trading in Seattle at D.A. Davidson &
Co. "The longer it takes them to come up with specific policies,
the longer it will take to get them through Congress."
Another factor supporting Treasurys has been political
uncertainty in Europe and France in particular, where the far right
presidential candidate Marine Le Pen is widely expected to make it
to the second round of voting in May.
Though polls suggest Ms. Le Pen will lose in a runoff, investors
are hesitant to count her out after being caught off guard last
year by the U.K.'s vote to leave the European Union and Mr. Trump's
victory.
Ms. Le Pen has endorsed pulling France out of the eurozone -- a
move that could destabilize financial markets and drive investors
to the safety of haven debt.
There are signs that investors are still fairly bullish on U.S.
economy. Even as bonds have rallied, stock indexes have been
reaching new highs, and bond yields are still well above their
historically low levels from last year.
One reason why investors have bought bonds in recent weeks has
been the "need to insure against their ever increasing gains in
equities," said Thomas Simons, senior vice president and
money-market economist in the Fixed Income Group at Jefferies
LLC.
Some investors have been prepared for Treasury yields to decline
this quarter.
Tom Girard, head of New York Life's fixed-income team, said his
group had expected the 10-year yield to fall close to 2% before
rising to 3% by the end of the year.
"We figured that there would be some bumps with the new
administration" and that it "wouldn't be clear sailing to tax
reform and easing of regulations," he said.
Write to Sam Goldfarb at sam.goldfarb@wsj.com
(END) Dow Jones Newswires
February 24, 2017 15:57 ET (20:57 GMT)
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