BOND REPORT: Treasurys Draw Buyers In Relief Rally After Yellen's Remarks

By Sunny Oh Features Dow Jones Newswires

Fed Chairwoman Janet Yellen will speak on financial stability at 10 a.m. Eastern

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Treasurys attracted bidders on Friday trade as part of what traders described as a relief rally after Federal Reserve Chairwoman Janet Yellen issued no remarks on the pace of the central bank's tightening cycle, drawing investors who were sitting on the sidelines back into the market for government paper.

Market participants are still awaiting a speech from European Central Bank President Mario Draghi at the Kansas City Federal Reserve's symposium in Jackson Hole, Wyo.

The 10-year Treasury note's yield fell 2.9 basis points to 2.167%, while the 30-year bond's yield declined 2.2 basis points to 2.750%. The yield for the 2-year note edged higher 0.4 basis point to 1.338%. Bond prices move inversely to yields.

See: Jackson Hole Fed conference live blog: Yellen defends bank-reform efforts (http://blogs.marketwatch.com/capitolreport/2017/08/25/jackson-hole-fed-conference-live-blog-yellen-draghi-on-tap/)

Treasury yields pivoted lower, meaning a rise in bond prices, after Yellen offered no thoughts on the current policy path as investors had expected. Analysts said those looking to purchase government paper waited for Yellen's speech to finish, before plunging back into the market.

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"There was some pent-up demand for bonds, pent-up demand for euros. Whoever wanted to buy bonds was waiting for the all-clear, waiting for Yellen to say nothing," said Thierry Albert Wizman, global currencies and interest-rates strategist for the Macquarie Group.

Some had initially suggested the speech could be sizing up to become a historic one, as it could be the last time she will attend the Jackson Hole symposium as arguably the world's most powerful central banker. President Donald Trump's chief economic adviser Gary Cohn has been touted as the leading candidate to succeed Yellen (http://www.marketwatch.com/story/cohn-reportedly-front-runner-to-replace-yellen-as-fed-chief-2017-07-11) when her current term office ends in 2017.

Also see:Fearful of awakening market bears, Yellen and Draghi to tread softly at Jackson Hole (http://www.marketwatch.com/story/fearful-of-awakening-market-bears-yellen-and-draghi-to-tread-softly-at-jackson-hole-2017-08-24)

Yet only a week ago, speculation was rampant that Cohn would leave the White House following the political drama in Washington after an outbreak of violence in Charlottesville, Va.

Cohn pushed back on those reports, saying he had no interest leaving his position as Trump's chief economic adviser, in an interview with the Financial Times released on Friday (https://www.ft.com/content/0169006e-8946-11e7-bf50-e1c239b45787). In fact, Cohn said he and his team have made headway on more specific details on their policy proposal, throwing a few bones to investors betting on major tax reform.

Read:Do stock-market investors really care about Gary Cohn and the Trump agenda? (http://www.marketwatch.com/story/do-stock-market-investors-really-care-about-gary-cohn-and-the-trump-agenda-2017-08-22)

The remarks come as White House officials and congressional leaders were finding pockets of consensus on the tax plan, a hint that the Trump administration was moving toward a more complete draft, according to Politico (http://www.politico.com/story/2017/08/22/trumps-team-and-lawmakers-making-strides-on-tax-reform-plan-241873).

Analysts said Draghi's comments were likely to garner more attention than Yellen's, even if he tries to avoid giving a speech that could be interpreted as hawkish and a prelude to a tapering of ECB bond purchases. Last time round, his speech at Sintra two months back caused the euro to surge, hamstringing the ECB's efforts to stimulate a broad economic recovery in the eurozone. (http://www.marketwatch.com/story/what-happened-to-mario-draghis-silver-tongue-2017-06-28)

But as the ECB runs out of sovereign bonds to buy, analysts feel Draghi has no choice but to begin signaling an end to the use of quantitative easing.

"The balance of risk is that [Draghi] does end up being a bit more hawkish than markets expected," said Lisa Hornby, a fixed-income money manager for Schroders.

The yield for the 10-year German government bond, or bund, rose a single basis point to 0.387%.

Read:Here's what investors will be watching when Draghi, Yellen speak at Jackson Hole (http://www.marketwatch.com/story/heres-what-investors-will-be-watching-when-draghi-yellen-speak-at-jackson-hole-2017-08-22)

Before the central bankers' speeches, a report on lasting goods showed a sharp drop. Durable goods, a gauge of business investment, fell 6.8% in July, but the less volatile version of the economic indicator, which excludes transportation, rose 0.5% in July (http://www.marketwatch.com/story/orders-for-durable-goods-sink-68-in-july-the-most-in-nearly-three-years-2017-08-25). Bond yields tend to rise immediately following a bump in economic data on traders' concerns that growth could translate into inflation.

Analysts said the sharpest drop in durable good orders in nearly three years was down to a large one-off batch of airplane orders for Boeing in June (http://www.marketwatch.com/story/boeing-bonanza-durable-goods-orders-soar-65-in-june-2017-07-27), making the July report more positive than the initial number had suggested. Once investors sift through the details, it would read as a "very encouraging report on capital spending," noted Jennifer Lee, senior economist at BMO Capital Markets.

She, however, added the caveat that protracted policy uncertainty in Washington could prompt U.S. corporations to delay making large investments.

(END) Dow Jones Newswires

August 25, 2017 13:04 ET (17:04 GMT)