BOND REPORT: Treasury Yields Remain Higher As Yellen Reiterates Case For Rate Rise
September 26 2017 - 4:35PM
Dow Jones News
By Mark DeCambre and William Watts, MarketWatch
Janet Yellen says the Fed should be wary of 'moving too
gradually'
U.S. Treasury prices declined slightly Tuesday, nudging yields
up, as Federal Reserve Chairwoman Janet Yellen reiterated the case
for further rate increases despite inflation running below the
central bank's target.
On Monday, yields had fallen as escalating tensions sparked by a
flare-up in aggressive rhetoric between the U.S. and North Korea
inspired some buying of so-called haven assets, including gold
futures and government paper.
The benchmark 10-year Treasury yield rose less than a basis
point to 2.229%, while the 2-year Treasury note yield rose 1.5
basis points to 1.44%. The 30-year bond yield added 1.2 basis
points to 2.771%.
Bond prices and yields move in opposite directions.
Yellen, in a speech in Cleveland, said the Fed should be wary of
"moving too gradually"
(http://www.marketwatch.com/story/yellen-says-fed-should-be-wary-of-raising-rates-too-gradually-2017-09-26)
due to risks that the labor market could overheat, resulting in
inflation and prices rising too rapidly.
"In short, Dr. Yellen offered nothing to suggest that she sees
any reason to delay raising rates until next year, though she was
cautious, as usual, to avoid offering hostages to fortune," said
Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a
note.
Fed-funds futures traders are penciling in a roughly 78% chance
the central bank will deliver its third rate rise of 2017 in
December. Expectations for such a move were reinforced by the Fed's
policy statement following its meeting last week and by remarks
Yellen made at the time at a news conference.
The Treasury Department sold $26 billion of two-year notes at
auction. The sale was "relatively impressive" coming less than half
an hour after Yellen's remarks inspired significant flattening of
the yield curve, said Thomas Simons, senior money market economist
at Jefferies, in a Tuesday note.
The yield curve is line plotting yields across maturities. The
curve can flatten as the spreads between yields of different
maturities narrow or steepen as the spreads widen.
Earlier in the session, U.S. Case-Shiller home prices
(http://www.marketwatch.com/story/home-price-gains-accelerate-in-july-as-a-reminder-of-the-housing-bubble-stirs-to-life-2017-09-26)
rose 5.9% in July, compared with a 5.8% increase in June.
Meanwhile, August new home sales slipped to an annual rate of
560,000
(http://www.marketwatch.com/story/new-home-sales-swoon-to-8-month-low-in-august-2017-09-26),
below the 585,000 consensus and 580,000 reported in July.
The September consumer-confidence index narrowly exceeded the
MarketWatch consensus
(http://www.marketwatch.com/story/consumer-confidence-dips-after-hurricanes-irma-harvey-but-optimism-in-us-still-high-2017-09-26),
coming in at 119.8, versus 119.5 expected and 120.4 in the previous
month.
Check out:MarketWatch's Economic Calendar
(http://www.marketwatch.com/economy-politics/calendars/economic)
On the geopolitical front, the lack of fresh threats of conflict
in the Korean Peninsula on Tuesday, after Pyongyang's foreign
minister issued a warning in New York on Monday that his country
would shoot down U.S. warplanes even if they were outside the
nation's airspace, helped to check further bond buying. The U.S.
has dismissed North Korea's claim that recent comments over Twitter
from President Donald Trump represented a declaration of war
(http://www.marketwatch.com/story/north-korean-official-says-us-has-declared-war-2017-09-25-13103598).
Mounting military tensions and a surprise result in Germany's
general election, helped to fuel overall haven buying sentiment on
Monday, pressuring yields. Although German Chancellor Angela
Merkel's center-right Christian Democrats came in first in the
country's weekend election, support for her party fell, while
antiestablishment parties increased their profile, raising
questions about the political landscape in Germany and the
integrity of the euro and the European Union.
Read:German election result revives eurozone jitters as
investors turn attention to Spain
(http://www.marketwatch.com/story/german-election-result-revives-eurozone-jitters-as-investors-turn-attention-to-spain-2017-09-25)
The German 10-year government bond, or bund, a proxy for
eurozone health, edged 0.3 basis point higher to 0.406%.
(END) Dow Jones Newswires
September 26, 2017 17:20 ET (21:20 GMT)
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