BOND REPORT: Treasury Yields Slip To Fresh 10-month Low After Draghi Talks Of Tapering

By Mark DeCambre, MarketWatch , Sunny Oh Features Dow Jones Newswires

ECB President Mario Draghi says bulk of key policy decisions would come in October's meeting

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Treasury prices rallied, pushing yields to a fresh nadir, on Thursday after investors interpreted European Central Bank President Mario Draghi's comments as relatively dovish in his news conference earlier in the day, even as he punted on the decision to taper the ECB's asset-purchasing program forward to October.

The benchmark 10-year Treasury note was off 4.7 basis points at 2.061%, while the 30-year bond yield retreated 4.7 basis points at 2.668%. Both marked their lowest levels since Nov. 8.

The two-year Treasury note slipped 3.2 basis points at 1.274%, its lowest since May 18. Bond prices move in the opposite direction of yields.

The ECB, as expected, kept in place its EUR60 billion asset-buying program and left its main refinancing operations at 0%, while the rate on deposits left overnight was maintained at minus-0.4% and its marginal lending facility was left at 0.25%. U.S. bond investors eye the actions of the European Central Bank, as negative interest rates in the economic bloc have spurred a steady flow of money into higher-yielding U.S. paper.

Treasury yields fell, settling above their intraday lows, after Draghi said the ECB's monetary-policy-setting committee would use its Oct. 26 meeting to decide whether to maintain the current pace of bond-buying after 2017. He also fielded questions on the strength of the euro , but refused to comment on its summer surge. Nonetheless, the currency tipped over $1.20 despite what Draghi described as exchange-rate volatility.

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"Now we've gotten the ECB out of the way, there was no hawkish surprise. Now we're recouping all of yesterday's uncertainty in the markets," said Patrick O'Donnell, senior investment manager at Aberdeen Standard Investments, referring to the previous session's selloff in Treasurys.

"All in all, it was a pretty dovish press conference," said David Owen, chief European financial economist for Jefferies. "He wasn't upbeat on the eurozone as we expected him to be."

In past speeches, Draghi has showed an optimism over the broadening economic recovery in the region, but a conspicuous lack of such remarks shows he has been under pressure to strike a more measured tone to avoid roiling markets. Still, the European Union's statistics agency showed eurozone growth has picked up earlier than previously understood, raising its second-quarter figures to an annualized 2.6% rate.

Comments Draghi made in Sintra, Portugal, in late June (http://www.marketwatch.com/story/draghi-hints-ecb-may-start-winding-down-qe-2017-06-27)were read as hawkish by speculators who sent the euro surging against the U.S. dollar. Since then, the currency has steadily climbed. A stronger euro can undercut growth and inflation in Europe's trade bloc by making goods and services offered by European multinationals more expensive to its main trade partners.

Check out: ECB live blog recap: Is strong euro making Mario Draghi miserable? (http://blogs.marketwatch.com/thetell/2017/09/07/ecb-live-blog-is-strong-euro-making-mario-draghi-miserable/?mod=MW_story_latest_news)

Analysts still expect the ECB to commence tapering the crisis-era European stimulus program in 2018.

"What I think got the market going is the fact that [the ECB] has very little options," said Marvin Loh, senior fixed-income strategist for BNY Mellon.

The German 10-year government bond plunged 5 basis points to 0.299%, compared with 0.344% in the previous session.

Investors also received their first piece of U.S. economic data to show an influence from Hurricane Harvey. Jobless claims for the week ending Sept. 2 surged to 298,000 from 236,000 (http://www.marketwatch.com/story/storm-surge-hurricane-harvey-boosts-jobless-claims-by-62000-to-298000-2017-09-07), its highest level since early 2015, as workers found it difficult to get to work, making them eligible for unemployment benefits. But analysts said the bump in claims would be transient.

"Such extreme weather effects are invariably temporary," wrote Jim O' Sullivan, chief economist for High Frequency Economics.

Besides data, investors looked ahead to speeches from several members of the Fed's rate-setting group a day after Stanley Fischer resigned from the board of governors (http://www.marketwatch.com/story/vice-chairman-stanley-fischer-announces-resignation-from-the-fed-2017-09-06), raising the total number of vacancies on the influential panel to four. Cleveland Fed President Loretta Mester, a non-voting member, reiterated her view that further rate hikes were warranted (http://www.marketwatch.com/story/feds-mester-wants-to-stay-on-gradual-rate-hike-path-despite-low-inflation-readings-2017-09-07).

Both New York Fed President William Dudley, a voter, and Atlanta Fed President Raphael Bostic, a voter in 2018, are slated to speak at 7 p.m. Eastern. Soon after, Kansas City Fed President Esther George, a nonvoter, will make an appearance at 8:15 p.m. Eastern.

(END) Dow Jones Newswires

September 07, 2017 16:25 ET (20:25 GMT)