BOND REPORT: Treasury Yields Reflate On Emmanuel Macron Victory In French Election

By Sunny Oh Features Dow Jones Newswires

Treasury prices fell, and yields gained, on Monday, after Emmanuel Macron won Sunday's runoff for the French presidential election, helping to alleviate geopolitical concerns that the euroskeptic Marine Le Pen would win.

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The Treasury yield for the 10-year note ticked up almost 2 basis points higher to 2.345%. Bond prices move in the opposite direction of yields; one basis point is one hundredth of a percentage point.

The yield for the 2-year rose 0.8 basis point to 1.326%, while the yield for the 30-year note, or the long bond, gained 1.6 basis point to 3.005%.

Macron's decisive defeat of the far-right candidate Le Pen was seen as a litmus test for the wave of populism washing over Europe, temporarily becalming markets that had grown anxious over a groundswell of anti European Union politicians. Le Pen, for example, had pledged to renegotiate France's terms of its EU membership, threatening the future of the trade bloc and the euro .

See: Investors are breathing a sigh of relief over France, for now (http://www.marketwatch.com/story/investors-are-breathing-a-sigh-of-relief-over-france-for-now-2017-05-07)

The spread between the French and German bond yields , an indicator of the relative risk of investing in French debt, has narrowed to 41.8 basis points from a high of 78 basis points in February.

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"From a capital markets perspective, this was the favored outcome and different from the Brexit vote or the US election in that the polls had it right. Overall, the outcome of this event reduces uncertainty in Europe," said Todd Hetke, chief investment officer of Allianz Investment Management.

Elsewhere, traders were paying attention to speakers from the Federal Reserve for clues on the pace and timing of interest-rate hikes, following Wednesday's updated policy statement.

St. Louis Fed President James Bullard, a nonvoting member of the Fed, said the target interest rate was close to the so-called Taylor rule recommendation (http://www.marketwatch.com/story/feds-bullard-says-target-interest-rate-is-close-to-where-taylor-rule-recommends-2017-05-08).The rule (http://www.marketwatch.com/story/if-fed-had-followed-taylor-rule-it-would-have-caused-substantial-job-loss-kashkari-says-2017-01-05) was devised by Stanford University economics professor John Taylor, which calculates the ideal level interest rates based on changes in economic variables.

Cleveland Fed President Loretta Mester, also a nonvoting Fed member, said she would be "comfortable" with reducing the balance sheet this year and that the central bank needed to be "very vigilant against fall behind" on rate increases.

(END) Dow Jones Newswires

May 08, 2017 10:10 ET (14:10 GMT)