The 10-year Treasury yield close to psychologically significant 2% level
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The 10-year Treasury yield is at the verge of falling below 2%, a key level that could trigger a further decline in yields as uncertainty from Hurricane Harvey and a declining likelihood of another rate hike this year have helped sustain a bid in U.S. government paper.
The 10-year Treasury note yield was down 0.2 basis point to 2.059%, from 2.047% in the previous session. The 2-year Treasury note yield was mostly flat at 1.274%, while the 30-year bond yield was slightly higher at 2.680%, compared with 2.677%. Bond prices move inversely to yields.
Treasury yields recovered from intraday lows, pulling bond prices lower, amid speculation that traders were selling ahead of next week's rush of new issuance, which can weigh on prices for the outstanding market. The Treasury Department will flog more than $56 billion of 3-year, 10-year and 30-year government paper.
"There's some setting up for the influx of government supply next week," said Tom di Galoma, managing director of Treasurys trading for Seaport Global Securities.
Di Galoma also suggested pressure from higher yields in Europe could be driving U.S. yields higher, after sovereign debt on both sides of the Atlantic rallied in response to European Central Bank President Mario Draghi's hints that the central bank could taper its bond purchases at the October policy meeting.
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The German 10-year government bond yield rose around 2 basis points to 0.315% on Friday.
See: Treasury yields slip to fresh 10-month low after Draghi talks of tapering (http://www.marketwatch.com/story/treasury-yields-slip-ahead-of-ecb-news-conference-2017-09-07)
Friday's middling action leaves long-dated Treasury yields at depressed levels. The 10-year benchmark yield has steadily fallen due to a combination of falling inflation expectations, President Donald Trump's waning pro-growth agenda, rising geopolitical risks from North Korea and a steady stream of flows from yield-hungry foreign investors.
Moreover, traders in the fed fund futures market are now downgrading a probability of the Federal Reserve raising rates to 20% from the 40% seen a few weeks ago, CME Group data shows.
Moreover, investors are worried that damages from Hurricane Harvey and Hurricane Irma could deal a blow to the economy while scrambling upcoming data. According to calculations by J.P. Morgan, the unofficial estimates for the cost of repairing the devastation from the two natural disasters could surpass 50% of the total costs from all hurricane in the past 50 years. Since 1965, hurricane damages, excluding Harvey, have totaled around $520 billion.
Read: Death toll rises to 10 as Hurricane Irma barrels through Caribbean, heads for Florida (http://www.marketwatch.com/story/death-toll-rises-to-8-as-hurricane-irma-barrels-through-caribbean-heads-for-florida-2017-09-07)
The combination of concerns has overshadowed the economic data coming out on Friday. Wholesale inventories was revised higher to a 0.6% increase from 0.4%, a potential bump for third-quarter GDP growth. On the other hand, a buildup in inventories could reflect businesses and retailers are having trouble off-loading merchandise to consumers.
Investors attempting to anticipate the swings and sways of Federal Reserve policy paid close attention to New York Fed President William Dudley's speech on late Thursday (http://www.marketwatch.com/story/feds-dudley-shows-no-signs-of-wavering-from-support-for-december-interest-rate-hike-2017-09-07). He reaffirmed his call for another interest-rate hike this year, but appeared to break from past form when he acknowledged the troubling persistence of inflation slipping below the central bank's 2% target.
One of the most influential members of the Fed's interest-rate setting committee, analysts have eyed Dudley as a bellwether for policy shifts in the central bank.
(END) Dow Jones Newswires
September 08, 2017 10:53 ET (14:53 GMT)