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 Mondaty, pushing yields higher, as investors that sought havens in 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 2.6 basis points to 2.217%. The 2-year treasury note ticked 2.8 basis points higher to 1.322%, while the 30-year bond's yield climbed 1.5 basis point to 2.805%. 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, including gold and Treasurys.

A lack of new global developments over the weekend, which turned Trump's attention to the violet events in Charlottesville, Va., 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.

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The Nasdaq Composite Index and the S&P 500 index both rose by more than 0.9%.

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.

Later in afternoon trading, Treasury yields extended their intraday gains across the board, meaning a pullback in bond prices, after New York Fed President William Dudley, one of the most influential members of the central bank's policy-setting panel, said he would support an interest-rate hike later this year as financial conditions continue to be easy (http://www.marketwatch.com/story/feds-dudley-wants-to-keep-raising-interest-rates-slowly-2017-08-14). Higher short-term interest rates are bearish on government paper.

In addition, if the economy continued to show robust growth and strength in the labor market, it would "get to the point where that will lead to higher wages and that will show up in terms of higher inflation," Dudley said. But some investors suggested his optimistic remarks stretched credulity amid the steady downtrend in inflation.

"It's trying to be brave in the face of increased market skepticism over the inflation outlook," said Marvin Loh, senior global markets strategist for BNY Mellon.

See: Fed's Dudley wants to keep raising interest rates slowly (http://www.marketwatch.com/story/feds-dudley-wants-to-keep-raising-interest-rates-slowly-2017-08-14)

Looking ahead, market participants will 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 16:35 ET (20:35 GMT)