BOND REPORT: 10-year Treasury Yields Tumble Toward Post-Election Day Lows As Geopolitical Tensions Rise

By Mark DeCambre, MarketWatch Features Dow Jones Newswires

North Korea missile launch sparks global stock selloff

Continue Reading Below

U.S. Treasury prices jumped, driving yields early Tuesday to their lowest levels since late 2016 as renewed market fears following a North Korean missile test stoked a flight into assets perceived as havens.

The yield on the 10-year Treasury note hit as low as 2.09% early Tuesday and was last down 5 basis points to 2.10% . That's the lowest since Nov. 11, just the day after Donald Trump's presidential election victory sparked a Treasury selloff that sent yields soaring, according to FactSet data.

Bond prices and yields move inversely.

The yield on the 2-year Treasury note shed 3 basis points to 1.309% --its lowest since Aug. 23, while the yield on the 30-year Treasury bond was off 5 basis points at 2.698%, marking its lowest since June 26. The so-called long bond had been as low as 2.69%.

The fall in yields for government paper came after North Korea launched a ballistic missile over Japanese airspace, reviving the geopolitical fears that had rattled Wall Street amid testy verbal sparring between North Korean leader Kim Jong Un and President Donald Trump, who earlier this month threatened "fire and fury (http://www.marketwatch.com/story/trump-today-president-says-north-korea-faces-fire-and-fury-if-it-doesnt-halt-threats-2017-08-08)" against the Hermit Kingdom over its nuclear missile program.

Continue Reading Below

"The world has received North Korea's latest message loud and clear: this regime has signaled its contempt for its neighbors, for all members of the United Nations, and for minimum standards of acceptable international behavior," Trump said in a Tuesday morning statement.

This recent missile launch was the first Pyongyang has fired over Japan's main islands since 2009, and is the latest in a string of direct provocations, the most recent of which occurred a few days ago.

"Under a different administration market response to a missile launch would have been level-headed. The real concern here is that it's happening with Trump as a president," said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets.

Lyngen noted that a rally in Treasurys will be supportive for the auction process.

"This month has particularly large demand for duration extension, which should help the auction of 7-year bonds today," Lyngen said.

The Treasury is scheduled to sell auction 7-year bonds worth $28 billion in the afternoon.

Seasonally low trading volumes also have left the market more sensitive to pronounced asset swings. August tends to be the most volatile and among the more lightly traded periods for stocks and bonds.

Other havens gained from the sense of uncertainty sparked by Pyongyang's move. Gold futures were up 1% at around $1,328 an ounce, hovering around the highest levels since September 2016, while currencies considered safe also strengthened against the dollar. The euro jumped through $1.20 for the first time since January 2015, and the dollar hit its lowest in four months against the Japanese yen, fetching recently Yen108.55, down from Yen109.26.

In European fixed-income markets, the 10-year German bond , also known as the bund, saw yields of 0.33%, compared with 0.376% late Monday in New York.

Government bond yields also have been under pressure in the wake of flooding that has left billions of property damage and flooding in the Houston area caused by Hurricane Harvey, which has now been downgraded but continues to inundate the Gulf Coast with rain, disrupting energy production as it is set to wreak havoc on the epicenter of U.S. crude-oil refining.

On the economic front, a report on U.S. home-price growth rose in June as strong demand continued to buoy the market. The S&P/Case-Shiller 20-city index rose a seasonally adjusted 5.7% in the three-month period ending in June, compared to a year ago, the same rate of change as in May.

Looking ahead, a reading of consumer confidence is for August is due at 10 a.m. Eastern.

(END) Dow Jones Newswires

August 29, 2017 09:57 ET (13:57 GMT)