BOND REPORT: 2-year Treasury Yield Rises For Fifth Day In A Row

By Sunny Oh Features Dow Jones Newswires

10-year Treasurys touch 2.40%

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Treasury yields continued to rise Tuesday as geopolitical concerns remained subdued following anti-euro candidate Marine Le Pen's defeat in the French presidential election runoff on Sunday and as new corporate supply weighed on demand for U.S. government paper.

The yield on the 2-year Treasury note rose 2.4 basis points to close at 1.355%, the highest in eight weeks, before pulling back in late afternoon trading after a North Korean diplomat said the hermetic country would carry on with its nuclear weapon program. Bond prices move inversely to yields; one basis point is equal to one hundredth of a percentage point.

The Treasury yield for the 10-year note gained 2.9 basis points to 2.405%, while the 30-year bond, or the long bond, added 2.4 basis points to reach 3.038%.

Treasury yields have steadily climbed amid abating geopolitical concerns as pro-European centrist Emmanuel Macron beat Le Pen in the runoff of the French presidential election on Sunday. The prospect of her victory had frightened some investors wary of her anti-EU rhetoric, motivating some money managers to shift to U.S. government bonds and assets perceived as safe over the last month.

Contributing to this trend, a larger-than-expected amount of new high-grade corporate bonds hit the market on Monday, eating into demand for Treasurys, which offer lower yields than corporate credits to investors.

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"Corporate bond issuance is having an adverse effect on yields," said Tom di Galoma, managing director of Treasury trading at Seaport Global Securities. "There's also been an unwind of some of the flight to quality trade tied to the French election and what's been going on in North Korea."

But yields pared back gains after the North Korean ambassador to the UK said the country was on track for its sixth nuclear test, in an interview with Sky News (http://news.sky.com/story/north-korea-not-afraid-as-it-plans-new-nuclear-test-says-ambassador-in-uk-10870570), sparking a minor flight-to-quality as investors rushed into other haven investments including the Japanese yen and gold .

Demand was soft for the auction of $24 billion worth of three-year government paper, said Jefferies. Auction sales can influence prices and yields for the outstanding Treasury market.

Though investors are looking for further direction on how the central bank will hike rates and taper its $4.5 trillion balance sheet at the same time, the docket of Fed speakers did not appear to influence trading for Treasurys. Minneapolis Fed President Neel Kashkari and Boston Fed President Eric Rosengren spoke but did not issue remarks related to interest rates.

Kansas City Fed President Esther George, a nonvoting member of the Fed, said the central bank should stay the course (http://www.marketwatch.com/story/feds-george-says-rate-hikes-should-continue-despite-some-economic-indicators-flashing-yellow-2017-05-09) and hike rates despite recent weakness in economic indicators like auto sales. Dallas Fed President Robert Kaplan, a voting member, will appear in a moderated discussion held by the Dallas Regional Chamber at 5 p.m. Eastern.

(END) Dow Jones Newswires

May 09, 2017 16:56 ET (20:56 GMT)