BOND REPORT: Treasury Yields Stabilize Ahead Of Pending Auctions

By Sunny Oh Features Dow Jones Newswires

A raft of economic data is set to be released this week

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Treasury yields showed little change on early Monday trade ahead of auctions for government paper, which will kick off a week brimming with economic data that may influence the Federal Reserve's plan for normalizing monetary policy.

The yield for the benchmark 10-year Treasury note was mostly steady at 2.164%. The 2-year Treasury note's yield fell 1.2 basis point to 1.325%, while the 30 year bond's yield rose 1.2 basis point to 2.760%. Bond prices move inversely to yields.

The Treasury Department will auction off $26 billion worth of 2-year notes at 11:30 a.m. Eastern, before following up with another $34 billion auction of 5-year notes at 1 p.m. The sales of government paper put additional inventory into Treasury markets, which can push prices lower and raise yields in the outstanding market.

Before the coming supply, investors digested an early reading of U.S. trade patterns, showing that the trade gap has widened by 1.78% to $65.1 billion July. Economists surveyed by MarketWatch had expected a goods trade deficit of $64.6 billion.

See: U.S. trade deficit widens in July, advance report shows (http://www.marketwatch.com/story/us-trade-deficit-widens-in-july-advance-report-shows-2017-08-28)

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Treasury yields spent much of last week treading water at the bottom of its range. Bond-buying drove yields for government paper lower on Friday, after Federal Reserve Chairwoman Janet Yellen steered away from any mention of the trajectory of interest rate increases at the central banking get-together in Jackson Hole, Wyo., sparking a relief rally (http://www.marketwatch.com/story/treasury-yields-steady-as-investors-await-yellen-and-draghi-2017-08-25). But Treasury trading fluctuated in line with estimates of geopolitical concerns (http://www.marketwatch.com/story/trump-threatens-shutdown-over-border-wall-funding-predicts-end-of-nafta-2017-08-22) from the White House, which have kept bond investors on edge.

Strategists, however, expect clearer direction as investors head into a week packed with first-tier economic data. Traders will grapple with July's personal-consumption expenditures, the Fed's preferred inflation gauge, a revised reading for second-quarter GDP data and nonfarm payrolls for August set to be released on Friday. The raft of data could give senior Fed officials more information on the inflation outlook as they deliberate on the need for an additional rate increase this year.

But analysts suggested the impending wind-down of the Fed's $4.5 trillion of government bonds and mortgage-backed securities--widely anticipated for a September announcement--would proceed even if August's jobs report comes in lower than expected.

"A disappointing payrolls reading could be cited by some Fed officials as a reason to hold off on balance sheet normalization, but most officials will probably be skeptical of a slowing signal," wrote Jim O' Sullivan, chief U.S. economist for High Frequency Economics.

Elsewhere, the yield for the German 10-year government bond, also known as the bund, was mostly unchanged at 0.376%. European Central Bank President Mario Draghi underlined the need for further monetary accommodation (http://blogs.marketwatch.com/capitolreport/2017/08/25/jackson-hole-fed-conference-live-blog-yellen-draghi-on-tap/?mod=MW_story_latest_news)despite a firming recovery in the eurozone at the Jackson Hole economic symposium, leaving the bund hovering at its lowest levels since June.

(END) Dow Jones Newswires

August 28, 2017 10:49 ET (14:49 GMT)