U.S. Government Bonds Pull Back

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bond prices drifted lower Monday, as investors anticipated upcoming economic data releases and a round of bond auctions this week.

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In recent trading, the yield on the 10-year Treasury note was 2.370%, according to Tradeweb, compared with 2.352% Friday.

Yields, which rise when bond prices fall, have trended upward in recent weeks, as alarming geopolitical headlines faded into the background and investors increasingly focused on the potential for the Federal Reserve to raise interest rates at its June policy meeting.

One element of uncertainty that had weighed on yields in recent months was removed on Sunday, as the centrist Emmanuel Macron was elected president of France in an easy victory over the far-right Marine Le Pen, who had threatened to pull the country out of the eurozone.

A win for Ms. Le Pen had been feared by investors but was seen as highly unlikely by the final days of the campaign, preventing the vote from having a major impact on the market.

Despite Mr. Macron's victory, yields on safe-haven government bonds fell modestly in the European trading session, before rising when the U.S. market opened.

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"At this point we're just kind of seeing some squaring up in the U.S. market" with investors "looking ahead to supply this week and a couple of the data points," including reports on the consumer-price index and retail sales, said John Herrmann, director of rates strategy at MUFG Securities in New York.

This week's auctions kick off Tuesday with a $24 billion sale of three-year notes, followed by a $23 billion sale of 10-year notes Wednesday and a $15 billion sale of 30-year bonds Thursday. An influx of new bonds can sometimes outpace demand, causing prices on existing bonds to fall in the secondary market.

Though still well below the 2.6% level it reached in December and March, the 10-year yield has been on the upswing lately, rising from a five-month low of 2.177% in mid-April.

Fed funds futures, used by investors to place bets on the Fed's interest-rate policy, showed 88% odds that the Fed will tighten policy at its June meeting, according to CME Group, up from 79% on Friday and 68% one week ago.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

U.S. government bond prices drifted lower Monday as investors anticipated coming economic data releases and a round of bond auctions this week.

The yield on the benchmark 10-year Treasury note settled at 2.376%, above the 2.352% on Friday.

Yields, which rise when bond prices fall, have trended upward in recent weeks as alarming geopolitical headlines receded into the background and investors increasingly focused on the potential for the Federal Reserve to raise interest rates at its June policy meeting.

One element of uncertainty that had weighed on yields in recent months was removed on Sunday as the centrist Emmanuel Macron was elected president of France in an easy victory over the far-right candidate, Marine Le Pen, who had threatened to pull the country out of the eurozone.

A win for Ms. Le Pen had been feared by investors but was seen as highly unlikely by the final days of the campaign, keeping the vote from having a major impact on the market.

Despite Mr. Macron's victory, yields on safe-haven government bonds fell modestly in the European trading session, before rising when the U.S. market opened.

"At this point we're just kind of seeing some squaring up in the U.S. market" with investors "looking ahead to supply this week and a couple of the data points," including reports on the consumer-price index and retail sales, said John Herrmann, director of rates strategy at MUFG Securities in New York.

This week's auctions kick off Tuesday with a $24 billion sale of three-year notes, followed by a $23 billion sale of 10-year notes Wednesday and a $15 billion sale of 30-year bonds Thursday. An influx of new bonds can sometimes outpace demand, causing prices on existing bonds to fall in the secondary market.

Though still well below the 2.6% level it reached in December and March, the 10-year yield has been on the upswing lately, rising from a five-month low of 2.177% in mid-April.

Fed officials, at a policy meeting last week, held short-term interest rates steady as widely expected, following a rate increase in March. But in a policy statement, officials said slow growth earlier this year was "likely to be transitory." On Friday, new data showed the unemployment rate falling to its lowest level in a decade, further bolstering confidence among investors that the Fed will act again in June.

When the Fed raises short-term interest rates, it tightens money supply in the economy and tends to shrink the value of outstanding bonds.

Fed funds futures, used by investors to place bets on the Fed's interest-rate policy, on Monday showed an 83% chance that the Fed will tighten policy at its June meeting, according to CME Group. That was up from 68% one week ago.

Still, the chances of at least one more interest-rate increase by the Fed's December meeting were put at just 57%, indicating many investors remain cautious about predicting rate increases over a longer time horizon.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

May 08, 2017 15:51 ET (19:51 GMT)