BOND REPORT: Treasury Yields Edge Lower As Crude Plunges In Wake Of OPEC Meeting

By Sunny Oh Features Dow Jones Newswires

10-year Treasury yields lingers below 2.30%

Continue Reading Below

Treasury yields edged lower Thursday after an agreement by the Organization of the Petroleum Exporting Countries and its allies to extend production curbs failed to soothe concerns about a global glut of crude.

The yield on the 10-year Treasury note declined 1.2 basis point to 2.254%. Bond prices move inversely to yields. The 2-year note yield lost 0.8 basis point to 1.298%, while the yield on the 30-year note, or the long bond, fell 1.3 basis point to 2.921%.

Despite expectations for rate increase next month, Treasury yields fell as traders felt the extended production cuts would be inadequate at reducing a glut in inventories. Higher energy prices can drag yields up by stoking inflation expectations. Though the correlation between the cost of a barrel of oil and rates for U.S. government paper have faded recently, higher oil prices can cause inflation.

See: Why oil is plunging even after OPEC extended its landmark output-cut deal (http://www.marketwatch.com/story/why-oil-is-plunging-even-after-opec-extended-its-landmark-output-cut-deal-2017-05-25)

West Texas Intermediate for July delivery fell 4.8% to $48.90 a barrel.

Continue Reading Below

"I think Treasury yields have been held down to a large extent by a significant selloff in oil which has caused everyone some concern we might even be heading for lower oil prices," said Mark Grant, chief strategist for Hilltop Securities.

On the data front, the trade deficit for April widened to $67.6 billion in April from $65.1 billion in March, compared with expectations for a gap of $64 billion, according to economists surveyed by MarketWatch. The number of Americans applying for first-time unemployment benefits for the week rose by 1,000 to 234,000 from the week ended May 20 (http://www.marketwatch.com/story/low-jobless-claims-look-like-rerun-of-early-1970s-2017-05-25).

Yields rose slightly in morning trading after investors interpreted the falling number of initial jobless claims as signs of a solid job market. The four-week initial jobless claims average slipped by 5,750 to 235,250, the lowest since April 1973. Economists, however, have been mostly scratching their heads as to when wages will rise given a 4.4% unemployment rate, a level considered near or at full employment.

Fed. Gov. Lael Brainard said global economic outlook had brightened up, a marked reversal from earlier comments that she was unsure if the economy was at full employment, which could warrant keeping rates low for a longer time. Treasury yields spiked momentarily in response to Thursday's speech.

"Brainard's comments kept the front-end under relative pressure today as the noted dove struck a fairly optimistic note," said Ian Lyngen, head of rates strategy for BMO Capital Markets, in a note.

St. Louis Fed President James Bullard, a nonvoting member of the Fed's interest-rate setting committee this year, will give a talk on economics and monetary policy in Tokyo at 9 p.m. Eastern.

An auction of $28 billion of 7-year notes drew enthusiastic bidding, even though analysts were worried earlier that this week's raft of Treasury auctions would be tepid ahead of a near-certain rate increase.

(END) Dow Jones Newswires

May 25, 2017 17:33 ET (21:33 GMT)