Treasurys Pull Back After Recent Gains

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bond-prices edged lower Wednesday as investors expressed a measure of relief at the release of written congressional testimony from former FBI Director James Comey.

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The yield on the 10-year Treasury note settled at 2.180%, compared with 2.147% Tuesday -- its lowest close since Nov. 10. Yields rise when bond prices fall.

Mr. Comey's testimony, posted on the Senate Intelligence Committee's website in advance of a hearing Thursday, details his interactions with President Donald Trump in the months leading up to his dismissal. It includes the charge, already reported in the media, that Mr. Trump asked him to back off an investigation into former national security adviser Mike Flynn.

Still, investors responded to the testimony in a way that suggested that it fell short of their worst expectations.

Though unflattering to Mr. Trump on several accounts, the testimony doesn't include "anything that's going to do him in," said Mary Ann Hurley, vice president of fixed income trading in Seattle at D.A. Davidson & Co.

A key issue for investors is whether Mr. Trump's legislative agenda will be hurt by investigations into possible collusion between Trump associates and Russia, as well as Mr. Trump's response to those probes. Headlines seen as negative for his administration have tended to boost the price of ultrasafe Treasurys while more positive developments have often had the opposite effect.

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Demand for bonds in recent days has partially reflected investors' caution ahead of a trio of events Thursday, with a European Central Bank meeting, the U.K. general election and Mr. Comey's public testimony.

Investors have also been lowering their expectations for economic growth and inflation, stemming from soft data and dimming prospects for fiscal stimulus out of Washington.

The 10-year yield has fallen more than 0.4 percentage point since climbing above 2.6% in early March.

Investors still expect the Federal Reserve to raise short-term interest rates at its next meeting June 13-14. But many expect a long pause after that, especially given the central bank's plans to start unwinding its balance sheet later in the year.

To some extent, the recent bond rally could reflect "an outright protest" by bond investors "who don't think the Fed should be raising rates in a very low inflationary environment," said Ray Remy, head of fixed-income trading in New York at Daiwa Capital Markets America Inc.

One factor that could depress bond prices in the near term is looming debt supply, according to analysts.

Auctions of three-year and 10-year notes are expected to take place Monday followed by a sale of 30-year bonds on Tuesday.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

June 07, 2017 15:58 ET (19:58 GMT)