ECB's Draghi says eurozone recovery 'increasingly solid'
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Treasury prices rose, and yields fell, on Thursday as European Central Bank inaction and largely upbeat remarks from its head stoked demand for European government paper and U.S. Treasury notes.
ECB President Mario Draghi said he saw "diminished" downside risks to the eurozone economy (http://blogs.marketwatch.com/thetell/2017/04/27/ecb-live-blog-mario-draghi-expected-to-avoid-taper-talk/), his remarks coming after the ECB, as expected, said it would keep interest rates unchanged and its asset-purchasing program intact.
The yield on the 10-year Treasury note dropped 2.2 basis points to 2.285%. Bond prices move in the opposite direction of yields; and one basis point is one hundredth of a percentage point.
The yield on the 2-year note dropped 1.2 basis points to 1.262%, while the yield for the 30-year bond fell 0.8 basis point to 2.953%.
The yield on the German 10-year benchmark government bond, or bund, slipped 6.2 basis points and its French equivalent fell 6.5 basis points in response as any investor hope that Draghi might hint at an early unwinding of the central bank's quantitative easing were frustrated.
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"There was a lot of hope that Draghi was going to taper, so when he didn't actually taper today, you saw bunds ripping higher as there was a short-covering bid in bunds. We saw European government bond yields rising as a result," said Tom di Galoma, managing director at Seaport Global Securities. "It's kind of a small risk-off trade."
Short-covering refers to when investors are forced to buy back securities they had borrowed, after betting the investment would fall in price. If there is enough short-covering, traders can end up driving prices upward.
See: German inflation rises to 2% in April 2017 (http://www.marketwatch.com/story/german-inflation-rises-to-20-in-april-2017-04-27-84855858)
Yields moved lower in the wake of the tax plan highlights announced Wednesday by the Trump administration (http://www.marketwatch.com/story/breaking-down-trumps-tax-reform-for-the-retirement-investor-2017-04-26). Treasury Secretary Steven Mnuchin and Director of the National Economic Council Gary Cohn said the White House would slash the top corporate tax rate to 15% from 35% and move toward a "territorial" corporate tax that would only ding profits earned within the U.S. away from a world-wide system. Other measures discussed included a repeal of the alternative minimum tax.
But a lack of detail sent stocks tumbling, and initially energized bonds and other haven assets perceived as less risky. The S&P 500 index notched an intraday high of 2397.99 points before closing at 2387.45 on Wednesday.
A raft of data will have traders paying close attention to their screens on Thursday. Jobless claims jumped 14,000 to 257,000 (http://www.marketwatch.com/story/jobless-claims-jump-to-one-month-high-of-257000-2017-04-27), beating the median forecast of 245,000 penciled in by economists surveyed by MarketWatch.
Durable goods orders rose 0.7% in Marc (http://www.marketwatch.com/story/durable-goods-orders-rise-07-in-march-to-mark-third-gain-in-a-row-2017-04-27)h, and the U.S. trade deficit increased slightly rising (http://www.marketwatch.com/story/us-trade-deficit-widens-in-march-2017-04-27)to $64.8 billion in March from $63.9 billion in February. Pending home sales declined 0.8% in March (http://www.marketwatch.com/story/pending-home-sales-lurch-lower-as-inventory-tightens-further-2017-04-27).
See: U.S. trade deficit widens in March (http://www.marketwatch.com/story/us-trade-deficit-widens-in-march-2017-04-27)
The Treasury will also sell $31.38 billion worth of 7-year notes at 1 p.m. Eastern. An auction of U.S. government debt can influence yields and prices for the outstanding Treasury market.
(END) Dow Jones Newswires
April 27, 2017 12:11 ET (16:11 GMT)