BOND REPORT: Treasury Yields Lift Off From 4-week Low On Upbeat Economic Data

By Sunny Oh Features Dow Jones Newswires

10-year yields continue to stay below 2.30%

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Treasury yields rose Thursday after strong economic data offset fresh revelations from the White House, increasing investor appetite for stocks and other risky assets as they shifted away from bonds.

The Treasury yield for the 10-year note gained 0.3 basis point to 2.228%, paring back from Wednesday's decline of 11.4 basis points, the largest fall in 11 months. Yields move inversely to bond prices; one basis points is equal to one hundredth of a percentage point.

The Treasury yield for the 2-year note added 2.0 basis points to 1.270%, while the 30-year bond lost 1.0 basis point to 2.901%. (http://www.marketwatch.com/story/bond-analysts-ignore-trump-controversy-to-keep-outlook-for-treasurys-unchanged-2017-05-17)

Yields and stocks rebounded after a raft of upbeat economic data offered a temporary distraction away from the commotion at Washington D.C. The NASDAQ Composite Index rose 0.58% to 6046.2 points.

The Department of Labor said new applications for unemployment benefits fell 4,000 to 232,000 for the period ending May 13th, while continuing jobless claims declined 22,000 to 1.9 million in April, the lowest since November 1988 (http://www.marketwatch.com/story/americans-on-unemployment-rolls-lowest-since-1988-2017-05-18). Tightening labor slack could stoke inflation and, in turn, have a corrosive effect on bond's fixed payments.

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The Philadelphia Fed reported its manufacturing index, which measures business sentiments for the state, had jumped to 38.8 in May (http://www.marketwatch.com/story/philly-fed-index-soars-to-388-in-may-2017-05-18) from 22.0 in April. The Conference Board's Leading Economic Index, which forecasts the direction of the U.S. economy, rose 0.3% in April (http://www.marketwatch.com/story/us-leading-indicators-point-to-faster-economic-growth-2017-05-18).

"The recent trend in the U.S. LEI, led by the positive outlook of consumers and financial markets, continues to point to a growing economy, perhaps even a cyclical pickup," said Ataman Ozyildirim, director of business cycles research at the Conference Board.

(http://www.marketwatch.com/story/us-leading-indicators-point-to-faster-economic-growth-2017-05-18) (http://www.marketwatch.com/story/us-leading-indicators-point-to-faster-economic-growth-2017-05-18)The Chicago Mercantile Exchange's FedWatch tool showed traders had raised the probability of a June rate hike to 69.2% from 60% yesterday in response to the spate of data releases.

The yield curve flattened after new reports alleged that advisers to President Donald Trump's election campaign reportedly had 18 interactions with Russia during April to November 16, according to Reuters (http://www.reuters.com/article/us-usa-trump-russia-contacts-idUSKCN18E106). The reports appear to contradict the Trump administration's previous denial of having no contact with Russian officials, and will form part of the inquiry the Federal Bureau of Investigation is conducting into links between his campaign and Russia.

The yield spread between the 2-year and the 10-year, a measure of growth expectations, narrowed (https://fred.stlouisfed.org/series/T10Y2Y)2.3 basis points to 93.8, its lowest since October.

The continuing White House drama has been worrisome to investors who feel the timetable for tax reform and other economic stimulus measures pledged by Trump has been pushed back as the president stays mired in scandal.

See: Bond analysts ignore Trump controversy to keep outlook for Treasurys unchanged (http://www.marketwatch.com/story/bond-analysts-ignore-trump-controversy-to-keep-outlook-for-treasurys-unchanged-2017-05-17).

Cleveland Fed President Loretta Mester will speak on the monetary policy outlook at the Economic Club of Minnesota in Minneapolis at 1:15 p.m. Eastern. One of the more hawkish members of the Fed, Mester does not have a vote this year. She has warned the central bank should be "very vigilant" (http://www.marketwatch.com/story/feds-mester-warns-against-going-too-slow-with-interest-rate-hikes-2017-05-08) about falling behind the curve.

(END) Dow Jones Newswires

May 18, 2017 11:22 ET (15:22 GMT)