Treasurys Extend Recent Declines

By Sam Goldfarb Features Dow Jones Newswires

U.S. government bond prices extended recent declines Friday amid fresh signs of a shift to tighter monetary policy by major central banks.

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In recent trading, the yield on the benchmark 10-year Treasury note was 2.211%, according to Tradeweb, compared with 2.199% Thursday.

Yields, which rise when bond prices fall, climbed overnight as a key Bank of England policy maker said that the central bank may need to raise interest rates in the coming months in response to building inflation pressures.

The BOE on Thursday held its benchmark interest rate steady at 0.25% following its September policy meeting, but the rate-setting Monetary Policy Committee said in a statement that a majority of officials on the nine-member panel believe borrowing costs will soon need to rise to bring annual inflation back to its 2% goal after it hit 2.9% in August.

Gertjan Vlieghe, seen as the MPC member least likely to support a rate-increase, said Friday that he was among those who could support higher interest rates, pointing to "rising pay pressure, strengthening household spending and robust global growth" as reasons why a move could be appropriate.

U.K. government bond yields rose sharply after Mr. Vlieghe's comments, creating a spillover effect on other markets. Adding to the pressure were comments from Sabine Lautenschläger, one of the European Central Bank's more hawkish members, who argued that inflation was on track to reach the ECB's target of just under 2%, making it appropriate for the ECB to start scaling back monetary stimulus.

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After setting fresh 2017 lows last week, Treasury yields had been on the upswing in recent days, reflecting in part waning concerns about the economic impact of Hurricane Irma and signs of a possible end to the recent inflation slowdown.

A report Thursday showed that U.S. consumer prices rose last month at the strongest rate since January, a sign that inflation could be picking up after months of weakness.

Yields continued to rise Friday despite a string of events that might have pushed them lower on other days.

A new missile test by North Korea had little impact on the market, while investors also registered little reaction to an apparent terrorist attack in London and a batch of lackluster U.S. economic data, highlighted by a report showing a 0.2% decline in retail sales in August.

While Hurricane Irma wasn't as bad as investors feared, that helped create "a sentiment change" in markets that "carried through this entire week," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

U.S. government bonds edged lower Friday, extending recent declines amid fresh signs of a shift to tighter monetary policy by major central banks.

The yield on the benchmark 10-year Treasury note settled at 2.202%, compared with 2.199% Thursday and 2.058% last Friday.

Yields, which rise when bond prices fall, climbed overnight as a key Bank of England policy maker said the central bank may need to raise interest rates in the coming months in response to building inflation pressures.

U.K. government bond yields rose sharply after the comments from Gertjan Vlieghe, dragging yields on government bonds higher in other markets. Treasurys then pared losses after the Commerce Department said U.S. retail sales fell 0.2% in August from the prior month.

After setting fresh 2017 lows last week, Treasury yields have climbed in recent days, reflecting waning concerns about the economic impact of Hurricane Irma and signs of a possible end to the recent inflation slowdown.

Once investors determined that Hurricane Irma wouldn't be as damaging as they had feared, there was "a sentiment change" in markets that "carried through this entire week," said Larry Milstein, head of government and agency trading at R.W. Pressprich & Co.

A report Thursday showed that U.S. consumer prices rose last month at the strongest rate since January, a sign that inflation could be picking up after months of weakness just in time for the Federal Reserve's September 19-20 policy meeting.

The somewhat brighter outlook for inflation helped modestly lift investors' expectations that the Fed could raise interest rates once more this year. The yield on the two-year Treasury note, which is especially sensitive to changes in monetary policy, climbed to 1.384% Friday from 1.270% a week earlier, marking its largest weekly gain since early March.

Yields ticked higher Friday despite a string of events that analysts said might have pushed them lower on other days.

A new missile test by North Korea had little impact on the market, while investors also registered little reaction to a subway bombing in London.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

(END) Dow Jones Newswires

September 15, 2017 16:52 ET (20:52 GMT)