U.S. Treasury Bond Prices Rise Amid North Korea Tensions

By Akane Otani Features Dow Jones Newswires

U.S. government-bond prices rose Wednesday as escalating tensions between North Korea and the U.S. pushed investors into haven assets.

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The yield on the 10-year U.S. Treasury note was recently at 2.219%, according to Tradeweb, compared to 2.282% on Wednesday. Yields fall as bond prices rise.

North Korea late Tuesday said it was examining firing missiles at Guam, stoking demand for Treasurys, gold and the Japanese yen -- considered to be safe-havens -- while spurring selling in stocks around the world. North Korea's comments came just hours after President Donald Trump warned the country that if it issued more threats, it would face "fire and fury like the world has never seen."

While the threats between the two countries rattled global markets, some traders said the response in the Treasurys market appeared to be relatively muted, a testament to how critical inflation has become to changes in direction in the bond market.

Soft inflation data, which investors think will keep the Federal Reserve from raising rates quickly, has kept Treasury yields relatively range-bound in recent months. Investors see inflation as a major threat to long-dated government debt, since it erodes the purchasing power of their fixed payments.

"Today everyone's concerned about North Korea, but to really break out of this range we're in, we're going to have to see inflation move or a very significant escalation in geopolitical headlines," said Dominic Pappalardo, director of the taxable portfolio management team at McDonnell Investment Management.

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So far, economic data has largely indicated inflation continues to be a weak spot in the U.S. recovery. Volatility in the bond market is likely to remain muted in the coming weeks, analysts say, although economic data pointing to an unexpected acceleration in inflation could jolt investors.

Write to Akane Otani at akane.otani@wsj.com

Corrections & Amplifications

This item was corrected at 3:52 p.m. ET to show that Wednesday's yield, which was at 2.219%, compared with the the 2.282% yield on Tuesday, not Wednesday.

U.S. government-bond prices climbed Wednesday as escalating tensions between North Korea and the U.S. pushed investors into haven assets.

The yield on the 10-year U.S. Treasury note settled at 2.246%, down from 2.282% on Tuesday. Yields fall as bond prices rise.

North Korea late Tuesday said it was examining firing missiles at Guam, stoking demand for Treasurys, gold and the Japanese yen -- considered to be safe-havens -- while spurring selling in stocks around the world. North Korea's comments came just hours after President Donald Trump warned the country that if it issued more threats, it would face "fire and fury like the world has never seen."

While the threats between the two countries rattled global markets, some traders said the response in the Treasurys market appeared to be relatively muted, a testament to how critical inflation has become to changes in direction in the bond market.

Soft inflation data, which investors think will keep the Federal Reserve from raising rates quickly, has kept Treasury yields relatively range-bound in recent months. Investors see inflation as a major threat to long-dated government debt, since it erodes the purchasing power of their fixed payments.

"Today everyone's concerned about North Korea, but to really break out of this range we're in, we're going to have to see inflation move or a very significant escalation in geopolitical headlines," said Dominic Pappalardo, director of the taxable portfolio management team at McDonnell Investment Management.

Bond prices pared gains in the afternoon after the Treasury Department's 10-year note auction was met by softer-than-expected demand.

The Treasury sold $23 billion of 10-year notes at a yield of 2.250%, higher than what dealers had anticipated. Demand for Treasurys in the overnight trading session may have contributed to the tepid appetite for the bonds, traders said.

Write to Akane Otani at akane.otani@wsj.com

(END) Dow Jones Newswires

August 09, 2017 16:19 ET (20:19 GMT)