BOND REPORT: Treasurys Face Selling As Geopolitical Tensions Are Dialed Back

By Sunny Oh Features Dow Jones Newswires

Treasury Department will sell 3-month bills at 11:30 a.m. Eastern

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Treasurys faced selling pressure, pushing yields higher, on Monday as investors that had sought havens like U.S. government paper last week amid North Korean geopolitical concerns rotated back into stocks and other assets perceived as risky.

The 10-year Treasury yield added 2.5 basis points to 2.219%. While, the 2-year treasury note ticked 1.2 basis point higher to 1.310%, while the 30-year bond's yield climbed 2.3 basis points to 2.810%. Bond prices move inversely to yields.

Investors sold government paper in early trade at New York after an abatement of intensifying war talk between North Korea and President Donald Trump's administration, which had increased demand for assets perceived as safe like gold and Treasurys. A lack of new developments over the weekend, as Trump remains preoccupied by a violence in Charlottesville, Va., has helped to lift stocks (http://www.marketwatch.com)while diminishing the appetite for other haven investments including the Japanese yen (http://www.marketwatch.com/story/dollar-bounces-higher-as-north-korea-anxieties-take-a-back-seat-2017-08-14)and gold (http://www.marketwatch.com/story/gold-falls-as-saber-rattling-quiets-down-2017-08-14).

"The weekend brought almost no new belligerent comments coming from either North Korea or the U.S. directed at the other, and this seems to have been enough of an impetus to cause risk markets to rally this morning," noted Thierry Wizman, global interest rates and currencies strategist for the Macquarie Group.

The Nasdaq Composite Index and the S&P 500 index both rose by more than 0.9%. On the other hand, gold futures slipped $5.20, or an 0.4% drop, to $1288.9 an ounce, while the yen weakened, helping to pare back last week's gains, as the dollar bought Yen109.70 on Monday, compared with Yen109.19 in last Friday's session.

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Meanwhile, traders were focused on coming auctions with no economic reports due Monday.

The Treasury Department auctioned 3-month bills. Fears over a messy resolution to the debt ceiling have shown up in government paper of shorter maturities has stoked volatility in short-term debt.

The usually positive spread between the yields of the 3-month bill and the 6-month bill has dipped into negative territory, according to Treasury Department data, a sign that some investors are betting that U.S. government may fail to pay its bills on time.

Investors tend to demand richer yields for relatively longer-dated debt than their shorter-term counterparts because they want to be compensated for parking their money for longer periods amid the prospect of rising prices, among other risk factors.

See: Debt-ceiling fears bubble up in Treasury bills (http://www.marketwatch.com/story/debt-ceiling-fears-bubble-up-in-treasury-bills-2017-07-25)

Market participants will chiefly focus on the release of the minutes from the July meeting of the policy-setting Federal Open Market Committee on Wednesday. The raft of tepid economic data last week including a weaker-than-expected inflation reading for July (http://www.marketwatch.com/story/us-consumer-inflation-remains-soft-in-july-cpi-shows-2017-08-11)has added to concerns that the Federal Reserve would find it difficult to raise interest rates this year.

Elsewhere, Japan reported that second-quarter growth rate hit 4% on an annualized basis (http://www.marketwatch.com/story/japans-economy-expanded-faster-last-quarter-2017-08-13), its fastest 3-month pace in 2 years and sixth straight quarterly gain. But Japanese government bond yields showed little reaction as the country celebrated Obon, a three-day national holiday for families to honor their ancestors.

The strong growth numbers, however, could force a rollback of monetary and fiscal easing, two of the three "arrows" (http://www.marketwatch.com/story/japans-prosperity-is-holding-it-back-from-making-needed-reforms-2016-04-29) of Prime Minister Shinzo Abe's agenda to pull the country out of a protracted economic slump.

(END) Dow Jones Newswires

August 14, 2017 12:19 ET (16:19 GMT)