The price of U.S. government bonds got a boost Tuesday as the deadly terrorist attack in Manchester and a disappointing U.S. housing report stoked demand for haven assets.
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In recent trading, the yield on the benchmark 10-year Treasury note was 2.238%, according to Tradeweb, compared with 2.254% Monday. Yields fall as bond prices rise.
The suicide bomber killed 22 people and injured dozens of others outside a pop concert in Manchester. Islamic State claimed responsibility for the attack outside the Manchester Arena in a statement distributed online Tuesday, but it couldn't be independently confirmed. Police had no immediate comment.
"The U.K. bombings added a new worry," said Thomas Roth, executive director in the rates trading group at MUFG Securities Americas Inc.
The haven flows were mild as new debt supply pressure keeps the bond market's price strength in check.
Meanwhile, new-home sales in the U.S. fell 11.4% in April after reaching a nine-year high the prior month, a possible sign of weaker demand after a run-up in prices. Economists surveyed by The Wall Street Journal had expected sales to drop 1%.
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New debt supply is keeping the bond market's price gains in check.
A $26 billion sale of two-year Treasury notes is due at 1 p.m. EDT Tuesday, followed by a $34 billion sale of five-year notes Wednesday and a $28 billion sale of seven-year notes Thursday. A $15 billion sale of two-year floating-rate Treasury notes is also due Wednesday.
Corporate bond supply has been robust this week ahead of the Memorial Day holiday as the political jitters surrounding the Trump administration that rattled markets last week have eased, said analysts.
Firms and banks that underwrite new corporate debt typically sell Treasurys to hedge against unwanted interest rate swings, reflecting the Treasury bond market's role as a bedrock for global finance.
Despite the roaring stock and corporate bond markets this year, Treasury bond yields have fallen after a big rise during late 2016. The 10-year yield traded at 2.446% at the end of 2016. In mid-March, it traded above 2.6%.
The bond market is showing a sign of caution over the U.S. growth momentum driven by skepticism over a rollout of large fiscal stimulus this year. Political uncertainty surrounding President Donald Trump has injected further uncertainty toward his fiscal agenda.
Mr. Trump's campaign promises of lower taxes, large infrastructure spending and lighter regulations have been the key factor driving investors to bet on stronger economic growth and higher inflation. Selling Treasurys has been a highlight of the reflation bets, but these bets have been unwinding this year.
A resilient stock market and a weakening dollar give the Federal Reserve some leeway in tightening monetary policy.
Financial derivatives suggest many investors expect the Fed to raise short-term interest rates next month following a rise in March. Traders say barring a big selloff in stocks or an unexpected shock, the Fed is likely to pull the trigger next month.
Fed-funds futures, used by investors to bet on the Fed's policy outlook, showed 79% odds that the Fed would raise short-term interest rates by its June 13-14 meeting, according to CME Group. The odds were 51% a month ago.
The minutes of the Fed's May 2-3 meeting are due Wednesday afternoon. Investors will zero in on clues about the pace of interest-rate increases as well as discussions about how to wind down the Fed's large balance sheet that includes more than $2 trillion worth of Treasury debt holdings.
Some analysts say the Fed may hold off raising rates during the second half of the year if the growth momentum weakens. The prospect of a slow path in raising rates reduces the risk of a big rise in Treasury yields, encouraging buyers into long-term Treasurys, which offer more attractive yields compared with government bonds in Germany, Japan and the U.K.
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(END) Dow Jones Newswires
May 23, 2017 11:08 ET (15:08 GMT)