Housing starts median forecast at 1.16 million
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Treasury yields were mostly flat Wednesday as traders waited on the sidelines for the European Central Bank policy meeting which could potentially signal an end to the ECB's bond-buying program and add to concerns that the sunset of its easy-money policy could hurt the market for government paper.
The 10-year Treasury yield rose 0.5 basis points to 2.268%. Bond prices move inversely to yields; one basis point is one-hundredth of a percentage point.
The two-year note's yield rose 0.4 basis points to 1.356%, but the 30-year yield edged lower by 0.5 basis points to 2.846%.
Investors treated the morning economic data releases as sideshows and have cast their eyes toward a doubleheader of central bank meetings on Thursday. The Bank of Japan will announce the outcome of its policy meeting early Thursday morning, but investors expect monetary policymakers in Tokyo to stay dovish after they pledged to buy an unlimited number of government bonds (http://www.marketwatch.com/story/heres-how-a-global-bond-selloff-forced-boj-to-check-a-yield-surge-in-jgbs-2017-07-07) to keep the yield for its 10-year note close to zero.
The European Central Bank will also hold its policy meeting in Frankfurt, Germany, where economists expect ECB President Mario Draghi to stick to the status quo and reiterate his view that monetary easing should stay accommodative. Reports say Draghi intends to announce preparations to end the bond-buying program at the Federal Reserve's Jackson Hole Symposium (http://www.marketwatch.com/story/ecbs-draghi-to-attend-feds-jackson-hole-conference-for-first-time-in-3-years-wsj-2017-07-13). Yet deteriorating inflation figures could make it difficult for him to take out language emphasizing a commitment to further monetary stimulus from his statement.
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See: Why Mario Draghi can't back down from ECB taper hints (http://www.marketwatch.com/story/why-mario-draghi-cant-back-down-from-ecb-taper-hints-2017-07-19)
The annual inflation rate for the eurozone has slipped for two straight months since May (http://www.marketwatch.com/story/eurozone-inflation-rate-falls-sharply-misses-view-2017-05-31), and has fallen well under the ECB's target rate of below, but close to, 2%. ECB policy maker Francois Villeroy de Galhau on Wednesday said that loose monetary policy is still needed to edge consumer prices higher to the central bank's desired rate, according to Reuters (http://www.reuters.com/article/us-ecb-policy-villeroy-idUSKBN1A40N7).
"Inflation remains the main challenge to central bankers wanting to normalize their policies, although most continue to maintain that recent weakness will be transitory," noted Marvin Loh, senior global markets strategist for BNY Mellon.
But investors could even see a carefully hedged statement and misinterpret it as hawkish if only because they know the ECB is looking to end quantitative easing. Draghi has a tough task, as his previous remarks sparked panic in bond markets (http://www.marketwatch.com/story/what-happened-to-mario-draghis-silver-tongue-2017-06-28), forcing him to walk back his comments a day later.
Economists say the ECB has a built-in timer as its bond-buying program contains a so-called "issuer limit" -- a ceiling to the amount it is allowed purchase from each sovereign debt market. Reports (http://www.reuters.com/article/eurozone-bonds-germany-idUSL8N1IB56L)show the ECB is struggling to fill its EUR60 million ($69.1 billion) quota.
"[The ECB] does not want to tighten monetary conditions at this time, but it has no choice other than to terminate -- not just taper purchases of sovereign bonds," wrote Carl Weinberg, chief economist for High Frequency Economics, in a note to clients.
On the economic data front, the Commerce Department reported that U.S. builders broke ground on new homes at an annual pace of 1.22 million, beating the 1.16 million median forecast from economists surveyed by MarketWatch. Economists said they had expected a rebound from weaker-than-expected data in May (http://www.marketwatch.com/story/home-builders-cut-back-for-third-straight-month-2017-06-16).
Also read: Housing starts jump as construction, home buying get back on track (http://www.marketwatch.com/story/housing-starts-jump-as-construction-home-buying-get-back-on-track-2017-07-19)
The strong number hinted that the U.S. economic expansion still had legs (http://www.marketwatch.com/story/poor-start-to-2017-not-really-first-quarter-gdp-raised-again-to-14-2017-06-29), but it did little to undo the pessimism built up after a spate of weak data that has weighed on the inflation picture (http://www.marketwatch.com/story/inflation-goes-nowhere-in-june-cpi-shows-2017-07-14) in the last few weeks. Housing is one of the key components of the core consumer-price index, a less volatile measure of inflation which strips out oil and food prices.
(END) Dow Jones Newswires
July 19, 2017 17:12 ET (21:12 GMT)