U.S. Government Bonds Strengthen as North Korea's Threat Stirs Markets

By Gunjan Banerji Features Dow Jones Newswires

U.S. government bonds strengthened on Friday after a nine-day losing streak as geopolitical tensions between the U.S. and North Korea reverberated through markets.

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The yield on the benchmark 10-year U.S. Treasury note slipped to 2.250%, according to Tradeweb, down from 2.278% on Thursday. Yields fall as bond prices rise.

North Korea's threat to detonate a hydrogen bomb over the Pacific Ocean stoked investor fears, bringing U.S. strains with Pyongyang back into the forefront after major stock indexes reached records earlier this week and government bond prices receded.

President Donald Trump's United Nations speech on Tuesday warned that the U.S. could "totally destroy" North Korea if it were forced to defend itself or its allies, leading to a fresh round of hostile rhetoric between the two countries. In recent weeks, North Korea has launched two missiles over Japan and tested its most powerful nuclear device.

"Do you want to be short bonds going into a weekend where North Korea might launch something?" said John Briggs, head of strategy at NatWest Markets.

The geopolitical fears echoed through markets. Major U.S. stock indexes swung around the flatline Friday, as assets considered safe, like gold, advanced.

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Benchmark government bonds had sold off for nine consecutive days, the longest streak of declines since 2011. Earlier this week, the Federal Reserve announced its plans to start trimming its multi-trillion dollar bond portfolio, and policy makers signaled a majority remained in favor of an additional interest-rate increase this year.

The outlook on interest rates sent yields on the two-year Treasury note, which tends to be more sensitive to the Fed's policies, to 1.442% Thursday -- its highest close since November 2008. The two-year yield declined to 1.439% Friday, according to Tradeweb.

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

U.S. government bonds strengthened on Friday as tension between the U.S. and North Korea reverberated throughout the markets.

The yield on the benchmark 10-year U.S. Treasury note slipped to 2.262% from 2.278% on Thursday. Yields fall as bond prices rise.

North Korea's threat to detonate a hydrogen bomb over the Pacific Ocean stoked investor fears, bringing worries about U.S. tension with Pyongyang back into the forefront after major stock indexes had risen to records earlier this week and government bond prices receded.

President Donald Trump's speech at the United Nations on Tuesday warned that the U.S. could "totally destroy" North Korea if it were forced to defend itself or its allies, leading to a fresh round of hostile rhetoric between the two countries. In recent weeks, North Korea has launched two missiles over Japan and tested its most powerful nuclear device.

"Do you want to be short bonds going into a weekend where North Korea might launch something?" said John Briggs, head of strategy at NatWest Markets.

Yields briefly dipped midday Friday as Robert Kaplan, president of the Federal Reserve Bank of Dallas, said at an energy conference that he has an "open mind" to one more interest rate increase in December and wants to "take a little bit more time" to observe economic data before reaching a decision.

The Federal Reserve announced its plans to start trimming its multitrillion dollar bond portfolio earlier this week, and policy makers signaled a majority remained in favor of an additional interest-rate increase this year. The 10-year yield had climbed for nine consecutive days through Thursday, the longest stretch of gains since 2011.

The yield on the two-year Treasury note, which tends to be more sensitive to the Fed's policies, settled at 1.438%, down from 1.442% on Thursday, when it was the highest close since November 2008.

Write to Gunjan Banerji at Gunjan.Banerji@wsj.com

(END) Dow Jones Newswires

September 22, 2017 16:38 ET (20:38 GMT)