In Europe, the yield on the 10-year German bond, known as the bund , was at 0.55%, as the recent global rout in sovereign bond yields, attributed to hawkish comments from European Central Bank head Mario Draghi, abated.
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Fed Gov. Lael Brainard said the central bank would need to see an improvement in inflation before it raised interest rates again this year
Treasurys saw some modest buying Tuesday after Donald Trump Jr. released a series of e-mail exchanges about a June 2016 meeting to discuss potential incriminating information against Hilary Clinton, drawing investors into U.S. government paper and assets perceived as less risky.
The benchmark 10-year Treasury note fell 0.8 basis points to 2.362%. Bond prices move inversely to yields. The 30-year bond was unchanged at 2.925%, while the two-year Treasury yield declined 0.8 basis points to 1.379%.
Treasury yields dipped at noon but were largely resilient after the release of a series of e-mail exchanges between one of President Trump's former business partners and Donald Trump Jr. The exchange was related to allegations that Trump Jr. was offered incriminating information against Clinton's supposed ties with Russia. A revival of geopolitical concerns over collusion between members of Trump's election campaign and Moscow helped to draw investors into Treasurys and assets perceived as less risky on a flight-to-quality bid.
See: Trump Jr. emails show how Russia's government communicated to president's campaign (http://www.marketwatch.com/story/trump-jr-emails-show-how-russias-government-communicated-to-presidents-campaign-2017-07-11)
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But market participants said they were mostly waiting for Fed Chairwoman Yellen's testimony to Congress, starting with the Senate Banking Committee on Wednesday as part of the semiannual monetary policy report. Traders will watch to see if she deviates from her stance that weakness in inflation is transitory, and maintains the outlook for monetary tightening this year.
"This week will be very important as it will start to set the stage for the September [Federal Open Market Committee] meeting," wrote Thomas Simons, senior money markets economist for Jefferies.
Analysts expect the Fed to start reducing its $4.5 trillion balance sheet at the September policy meeting. Some have said the gradual pace of the tapering is unlikely to have an impact on markets, but others said this once-in-a-lifetime event presented a risk to investors, if only because the dangers were unclear.
JPMorgan Chase Chairman Jamie Dimon said Tuesday, "we've never have had QE like this before, we've never had unwinding like this before." He felt a shift away from monetary stimulus could be "a little more disruptive than people think."
Despite concerns from market participants, U.S. central bankers appear to be moving ahead with their plans. San Francisco Fed President John Williams, a nonvoting member, reiterated his expectation for one more rate increase this year and the central bank to start reducing its balance sheet in the next few months.
Philadelphia Fed President Patrick Harker, a voting member, also said he wanted the Fed to cease reinvestment of principal from the securities held in its portfolio but was unsure over the need for higher interest rates, in an interview with the Wall Street Journal (https://www.wsj.com/articles/feds-harker-says-slowing-inflation-gives-him-pause-on-raising-rates-1499786821). Fed Gov. Lael Brainard said "firming economic activity" supported a reduction of the Fed's balance sheet, but the central bank would need to see an improvement in inflation before it raised interest rates again this year. Her comments accelerated the yield's move lower.
See: Brainard supports balance-sheet drawdown but on fence over rate hikes (http://www.marketwatch.com/story/brainard-supports-balance-sheet-drawdown-but-on-fence-over-rate-hikes-2017-07-11)
(END) Dow Jones Newswires
July 11, 2017 16:16 ET (20:16 GMT)