Treasurys Steady After Tuesday's Gains

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bonds edged lower Wednesday as the market kept to a tight range ahead of Friday's jobs report.

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The yield on the benchmark 10-year Treasury note settled at 2.264%, compared with 2.253% Tuesday. Yields rise when bond prices fall.

Wednesday's move marked a small reversal after investors scooped up bonds Tuesday following a batch of lackluster economic data, including a sharp decline in auto sales.

Bond prices typically rise on weak economic data, because lackluster growth can limit inflation, which chips away at the fixed returns of bonds.

Before Tuesday, recent data had largely confirmed that the U.S. economy is expanding at a slow but steady pace, while inflation remains muted despite a tightening labor market.

Given that mixed economic backdrop, most investors expect the Federal Reserve to start slowly reducing its Treasury debt holdings in the fall, while holding off on raising interest rates again until December at the earliest.

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Traders will get more insight into the labor and inflation picture on Friday, with the release of the monthly jobs report. But even that report hasn't elicited a "ton of expectation," as investors don't think it will change the outlook for the Fed, said Stanley Sun, interest-rates strategist at Nomura Securities International in New York.

The 10-year yield has been fairly stable of late, mostly holding to a 2.2%-2.4% range since the end of March and staying close to 2.3% over the past two weeks.

One factor influencing trading Wednesday was the Treasury Department's quarterly refunding announcement. While largely in line with expectations, the statement made no mention of any plans to issue new forms of long-term debt, such as a 50-year bond, creating a small boost for outstanding 30-year bonds.

Officials hinted that they would prioritize issuance of debt that matures in a year or less to fill the gap that the Fed is expected to leave as it shrinks its balance sheet. But they didn't supply details and said they would likely expand the volume of bonds with longer maturities.

Some analysts and investors had speculated that there could be discussion of ultralong bonds in the announcement given recent statements from government officials in support of the idea. The introduction of new long-term debt could divert some demand from existing bonds.

The yield on the benchmark 30-year bond settled at 2.847%, down from 2.854% Tuesday.

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

(END) Dow Jones Newswires

August 02, 2017 16:19 ET (20:19 GMT)