BOND REPORT: 10-year Treasury Yield Hit A 3-week High

By Sunny Oh Features Dow Jones Newswires

Congress passes to repeal-and-replace Obamacare

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Treasury prices fell Thursday, allowing yields to extend their rise to two days, ahead of a closely watched reading of employment set to be released Friday.

The yield on the 10-year note moved up 4.5 basis points to 2.354%, the highest level since April 10, according to Dow Jones data. Bond prices move inversely to yields.

The yield for the 2-year ticked 1.4 basis points higher to 1.31%, marking the rate-sensitive note's highest level since March 17, while the yield for the 30-year , or the long bond, advanced 4.2 basis points to 2.997%.

The yield rise comes after the Federal Reserve's policy-setting committee on Wednesday signaled plans to lift rates at least twice more in 2017 were undeterred by a spate of weak economic reports.

Traders said investors continue to sell government paper 24 hours after the Fed's decision to keep rates unchanged, while reaffirming its intention to normalize monetary policy, including lifting rates off ultralow levels and shrinking its $4.5 trillion balance sheet.

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"We think the [Federal Open Market Committee] has well telegraphed its intent to continue normalizing policy, with two more rate hikes in 2017, as well as by likely laying out a plan for measured balance-sheet reduction late in the year," said Rick Rieder, Blackrock's chief investment officer of global fixed income for BlackRock, in a note.

Presently, Wall Street is pricing in a 74% chance of a rate increase in June at the Fed's next policy meeting, according to the Chicago Mercantile Exchange's FedWatch tool.

An expectation for higher rates tends to lead investors to sell bonds in anticipation that newer bonds can be bought at richer yields in the future, pushing yields higher.

The market will be intently anticipating a reading of the health of U.S. employment, when the Labor Department releases its nonfarm-payrolls report early Friday. Economists are forecasting that 190,000 jobs were created in April and the unemployment rate to hold at 4.5%. Particular attention will be paid to wage growth, which traders look at to gauge inflation expectations. Rising inflation can undercut a bond's fixed payments.

A reading of initial-jobless claims, a measure of how many new individuals file to receive state unemployment benefits, released on Thursday slipped 19,000 to notch 238,000 claims (http://www.marketwatch.com/story/us-jobless-claims-fall-sharply-in-latest-week-2017-05-04) for the week ended April 29, suggesting the job market remains strong.

In other economic data, U.S. productivity growth weakened by 0.6% in the first quarter (http://www.marketwatch.com/story/us-productivity-slumps-in-first-quarter-2017-05-04), below the 1.2% annual average since 2007. Treasury yields continued their ascent after the spate of data releases.

Meanwhile, traders closely watched a House vote to repeal-and-replace Obamacare (http://www.marketwatch.com/story/house-passes-revised-bill-to-repeal-and-replace-obamacare-2017-05-04-141032048)on Thursday. President Donald Trump said passing his health-care bill, despite vocal opposition from Democratic rivals, would augur well for his plans to deliver a spate of corporate and individual-tax cuts, intended to juice economic growth.

Europe

German government bonds, or bunds, also came under selling pressure, ahead of the final round of France's presidential election on Sunday. Pundits anticipate centrist candidate Emmanuel Macron to comfortably win the face-off against far-right Marine Le Pen, with early polling suggesting a sizable lead has opened up between the two candidates.

Le Pen has pledged to pull France out of the European Union, which could destabilize the trading bloc and the euro, while Macron is viewed as friendly to the trading bloc.

More certainty over the outcome may prompt some investors to pull out of the perceived safety of European government paper, which has benefited from haven demand amid that political uncertainty.

See: Brace for market mayhem if Le Pen unexpectedly wins French presidency (http://www.marketwatch.com/story/brace-for-market-mayhem-if-le-pen-unexpectedly-wins-french-presidency-2017-05-04)

The 10-year bund yield jumped 6.9 basis points to hit a seven-day high of 0.374%, even as French assets saw mild selling with the French 10-year benchmark bond yield rising 1.9 basis point.

The spread between the two sovereign bonds narrowed 5 basis points, also underscoring fading fears a Le Pen win.

(END) Dow Jones Newswires

May 04, 2017 17:24 ET (21:24 GMT)