U.S. Government Bond Prices Weaken Tuesday

By Min Zeng Features Dow Jones Newswires

Prices of U.S. government bonds were slightly weaker on Tuesday, weighed down by new debt supply on both sides of the Atlantic.

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The U.K. and the Netherlands sold long-term bonds. In the U.S., a $24 billion sale of three-year notes is due at 1 p.m. Tuesday, followed by a $20 billion sale of 10-year notes Wednesday and a $12 billion sale of 30-year bonds Thursday.

The yield on the benchmark 10-year Treasury note rose to 2.395% earlier Tuesday. In recent trading, the yield has pared its gain to trade at 2.377%, according to Tradeweb, compared with 2.371% Monday.

Yields rise as bond prices fall.

Traders said the 10-year yield near 2.4% attracts buyers who believe the recent selloff would be short lived. The buying pushed up the 10-year yield on Monday following a more than 0.2 percentage point rise in the previous two weeks.

The subdued move in the bond market suggests investors are hesitating to place big bets either way before Federal Reserve Chairwoman Janet Yellen's semiannual testimony before Congress Wednesday, said some analysts.

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The U.S. consumer-price index report for June is scheduled to be released this Friday, a key data point this week to influence investors' bets on bond yields.

Investors are debating whether bond yields may continue to rise or, like many episodes in the past few years, the selling pressure will eventually fade. The split views underscore the crosscurrents that are complicating the bond market outlook.

The recent selloff in the global government bond market was driven by anxiety that a broad improvement in the global economy may allow major central banks to pull back ultraloose monetary stimulus. Easy money policy has played a big role driving up government bond prices to historically high levels following the financial crisis.

Worries over the European Central Bank to taper bond buying have in particular been growing. The Bank of Canada is widely expected on Wednesday to raise its benchmark policy rate for the first time in seven years.

Meanwhile, inflation, which is a big threat to long-term government bonds, remains subdued. Over the past few months, U.S. reports have showed inflation pressure slowed down, with some indicators falling below the Federal Reserve's 2% target.

Ms. Yellen has shrugged off recent softening inflation readings as temporary. Some money managers are skeptical over her inflation assessment.

"I have been saying for a week or so that this selloff is overdone," said Kevin Giddis, head of fixed-income capital markets at Raymond James. "The ECB will continue to buy bonds, and inflation will continue to be a problem for the U.S. Yields will fall again."

Yields are still low. The 10-year yield remains below the 2.446% settled at the end of 2016.

A closely-tracked survey showed sentiment on Treasury bonds was the most bearish since Dec. 2016. The share of investors expecting lower bond yields fell to 9% for the week that ended Monday from 11% the previous week and 23% two weeks ago, according to the weekly Treasury client survey released by J.P. MorganChase & Co. on Tuesday.

The share of investors expecting higher yields were steady at 32%, while the share of those staying neutral on yields rose to 59% from 57% a week ago, according to the survey.

Write to Min Zeng at min.zeng@wsj.com

(END) Dow Jones Newswires

July 11, 2017 11:05 ET (15:05 GMT)