BOND REPORT: Treasury Yields Edge Up As ECB Keeps Monetary Policy Unchanged

By Sunny Oh Features Dow Jones Newswires

ECB President Mario Draghi says EU recovery 'increasingly solid'

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Treasury prices fell, and yields rose, on Thursday as European Central Bank inaction and largely upbeat remarks from its head eased demand for lower-risk global bonds in favor of riskier assets.

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 said it would keep interest rates unchanged and its asset-purchasing program intact.

Yields for the 10-year Treasury note ticked up by 0.5 basis point to 2.312%. 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 was flat at 1.274%, while the yield for the 30-year bond increased a 1.3 basis point to 2.976%.

The European Central Bank announced it would make no changes to interest rates and would keep the overnight deposit rate at 0.4%. It also said it could extend the asset-purchasing program if inflation undershot the target rate of 2%. Draghi said the regional economy had grown 0.5% from quarter to quarter. But the central bank would stay open to the idea of further asset purchases if growth faltered, he said.

Both the German 10-year benchmark government bond and its French equivalent showed little change in response as investors had anticipated a re-iteration of the ECB's policy stance.

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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 United States away from a worldwide 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 intra-day 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. 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 from economists compiled by MarketWatch. The claims numbers suggest labor slack continued to remain in the job market, providing an environment where the Fed might choose to keep rates low.

Durable goods orders rose 0.7% in March, and the U.S. trade deficit increased slightly from $64.8 billion in March from $63.9 billion in February. Pending home sales will come out on 9:30 a.m. Eastern.

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 1:00 p.m. Eastern. An auction of U.S. government bonds can influence yields and prices for the outstanding Treasury market.

(END) Dow Jones Newswires

April 27, 2017 10:18 ET (14:18 GMT)