Treasury yields headed higher after European Central Bank President Mario Draghi hinted that the factors suppressing inflation would be short-lived, giving traders the impression the central bank intends to wind down its quantitative easing program by the end of the year.
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The yield for the 10-year benchmark note rose the most among the key tenors by 3.7 basis points to 2.175%. Bond prices move opposite of yields; one basis point is one hundredth of a percentage point. The 2-year note's yield gained 2.4 basis points to 1.377%, while the 30-year bond yield rose 3.3 basis points to 2.731%.
Draghi said a variety of factors were slowing the reflationary process but "are on the whole temporary and should not cause inflation to deviate from its trend over the medium term, so long as monetary policy continues to maintain the solid anchoring of inflation expectations," according to the text (https://www.ecb.europa.eu/press/key/date/2017/html/ecb.sp170627.en.html)of the speech.
Market participants read his comments as a signal that the central bank is looking past recent weak inflation numbers to set up for a tapering of its asset purchasing program. The ECB's quantitative easing is scheduled to end in December. Buying for U.S. Treasurys have been supported by low interest rates across the world as it offers relatively higher yields to Japan and other developed countries.
"There is less air going into the balloon," said Peter Boockvar, chief market analyst for the Lindsey Group, in a note to clients.
Yields for European sovereign paper rose on Draghi's remarks. The yield for the 10-year German benchmark bond, or the bund, jumped 6.4 basis points to 0.311%, while the yield for the 10-year French government bond, climbed 7.7 basis points to 0.684%.
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Draghi's comments echoed those of Fed Chairwoman Janet Yellen after she attempted (http://www.marketwatch.com/story/slower-inflation-feds-yellen-not-convinced-2017-06-14)to downplay a recent raft of weaker-than-expected inflation numbers in the past few months to strengthen the case for continuing with its monetary tightening. But despite the economic recovery in the eurozone, he maintained the need for the ECB to stay accommodative.
See: Draghi hints ECB may start winding down QE (http://www.marketwatch.com/story/draghi-hints-ecb-may-start-winding-down-qe-2017-06-27)
Traders will be closely eyeing speech from central bankers as Tuesday's schedule for Fed speakers will be especially busy, with the main highlight of Yellen's talk on the global economy coming up at 1 p.m. Eastern in London. Philadelphia Fed President Patrick Harker, a voter, will speak at 11:15 a.m. Eastern, while Minneapolis Fed President Neel Kashkari, also a voter, will appear at a town hall discussion in Michigan at 5:30 p.m. Eastern.
In the morning, San Francisco Fed President John Williams, a non-voter, said the long-term growth picture is likely to be shrouded unless governments do more to prop up the economy.
Also read: Don't expect Janet Yellen to signal retreat in London on Fed's interest rate strategy (http://www.marketwatch.com/story/dont-expect-janet-yellen-to-signal-retreat-in-london-on-feds-interest-rate-strategy-2017-06-26)
The Richmond's Fed Index, a survey of local manufacturer's health near Virginia, will be released at 10 a.m. Eastern. The Treasury Department will hold an auction for 5-year notes at 1 p.m. Eastern. Sales of U.S. government paper can influence trading in the outstanding market.
(END) Dow Jones Newswires
June 27, 2017 09:28 ET (13:28 GMT)