The yield on the benchmark 10-year U.S. government note rose Monday from the lowest level in more than six months as some investors took some chips off the table following last week's solid price gains.
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The bond market recouped some price losses after the monthly gauge of the service industry pulled back last month. The reading for the Institute for Supply Management was 56.9, a tab below 57 forecast by economists and down from 57.5 in April.
A reading above 50 still points to expansion, yet the slowdown adds to growing debate in the financial markets whether the U.S. growth momentum may be less robust than many investors have expected.
In recent trading, the yield on the 10-year note was 2.180%, according to Tradeweb. The yield settled at 2.159% Friday, the lowest close since Nov 10. Yields rise as bond prices fall.
The subdued move in the bond market reflects investors' hesitance to place large bets before some events later this week that may impact global markets. The highlight will be Thursday when the European Central Bank is scheduled to meet to set interest rate policy, the U.K. is scheduled to have a snap election and former FBI Director James B. Comey will testify before the Senate Select Committee on Intelligence.
The 10-year Treasury yield has fallen more than 0.2 percentage point this year after a big rise in late 2016. The shift into lower yields accelerated last week even as U.S. stocks set fresh record highs. The Dow Jones Industrial Average has soared by more than 1000 points this year.
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Some analysts say the bond market is offering a note of caution for investors chasing riskier markets at elevated valuation. Optimism over President Donald Trump's fiscal agenda has been waning. A number of economic releases over the past weeks have flagged some risk toward the U.S. growth outlook. Inflation has been slowing down, with some metrics drifting below the Fed's 2% target last month, an antithesis toward the narrative of stronger growth and higher inflation that dominated financial markets following the U.S. presidential race last November.
Praveen Korapaty, head of interest rate strategy at Credit Suisse, said for the bond market to sell off, investors need to see a rollout of fiscal stimulus before the end of this year, the Fed would surprise markets with a more aggressive pace of tightening policy, or the recent signs of slowing inflation would be temporary.
"Without these factors in place, it is hard to see the 10-year yield rise much from here," said Mr. Korapaty.
Some investors say higher stocks and Treasury bond prices reflect ample liquidity thanks to steady bond purchases from the European Central Bank and the Bank of Japan. This form of monetary stimulus is filling the void from the Federal Reserve, which has been tightening monetary policy. The results are still easy financial conditions which bolster investors' hunt for income in a world of low yields and low volatility, fueling higher prices in stocks, corporate bonds and emerging-market assets.
The 10-year Treasury yield fell by 0.06 percentage point last Friday, driven by the latest nonfarm payrolls report that showed smaller-than-forecast job gains and subdued wage inflation, even as the unemployment rate fell to the lowest level since 2001.
Analysts say the data is unlikely to stop the Federal Reserve from raising short-term interest rates next week, but it raises some question whether the central bank may stand pat during the balance of this year after a June hike.
Expectations of a slow-moving Fed have reduced anxiety over a swift rise in Treasury bond yields, contributing to the slides of bond yields since the Fed's policy meeting in March. The 10-year Treasury yield traded above 2.6% in March.
Write to Min Zeng at email@example.com
Corrections & Amplifications
This article was corrected at 4:13 p.m. ET because the original version incorrectly stated in the first paragraph and headline that the 10-year yield fell to its lowest level in more than five months. It should be more than six months.
"10-Year U.S. Government Bond Yield Rises from 5-Month Low" at 11:25 a.m. and 4:05 p.m. EDT incorrectly stated in the first paragraph and headline that the 10-year yield fell to its lowest level in more than five months. It should be more than six months. (June 5, 2016)
(END) Dow Jones Newswires
June 05, 2017 16:27 ET (20:27 GMT)