BOND REPORT: Treasury Yields Struggle For Direction After 13-year High In ISM Manufacturing Index

By Sunny Oh Features Dow Jones Newswires

A mass shooting late Sunday in Las Vegas has left at least 50 dead

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U.S. Treasurys saw muted action on Monday, keeping yields in a narrow range, as investors grappled with a strong reading on U.S. manufacturing activity gauge and geopolitical concerns, ranging from a Catalonian independence referendum and the deadliest shooting in modern U.S. history.

Though the action appeared muted, Treasury yields have beat a retreat from their intraday highs reached after a survey of Japanese businesses showed optimism among the nation's manufacturers was at a decade high, suggesting global growth continued to gain impetus from Japan. The country has historically struggled to cure deflation and revitalize its stagnant economy.

What are yields doing?

The 10-year benchmark Treasury yield was virtually unchanged at 2.326% on late Friday. The shorter 2-year note yield edged higher to 1.487%, from 1.479%, while the 30-year bond yield was down 2.856%, versus 2.859%. Bond prices move in the opposite direction of yields.

What did market participants say?

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"There's definitely a lot of crosswinds going through the marketplace," said Tom di Galoma, managing director of Treasurys trading for Seaport Global Securities. "But we've gone through some critical levels. Whenever we've gone past 2.30% in the 10-year [Treasury], we see some decent buying."

But he suggested the bond bulls could see the prospect for higher yields if the tax overhaul bill makes strides in Congress and if changes to the make-up of the Federal Reserve's interest-rate setting body gave it a more hawkish bent. Of particular importance, di Galoma said, is whether Federal Reserve Janet Yellen is replaced when her term at the helm expires in February.

'She is as dovish as they get, anyone who can replace her is going to be more [hawkish] than she was," he said.

What is moving markets?

A Las Vegas mass shooting (http://www.marketwatch.com/story/reports-of-dead-injured-after-mass-shooting-at-las-vegas-concert-2017-10-02)on Sunday left at least 58 people dead and more than 500 people injured.

And a region of Spain, Catalonia, carried out a disputed referendum on independence (http://www.marketwatch.com/story/eu-headed-for-new-crisis-analysts-fear-political-turmoil-after-violent-catalonia-vote-2017-10-02). The vote erupted in violence as Madrid tried to stop the referendum from taking place.

But earlier in the day, Treasurys had initially traded higher after the Bank of Japan's survey of business conditions, or "tankan," showed the manufacturing index has risen to 22, a 10-year high, in the third quarter (http://www.marketwatch.com/story/japans-business-confidence-hits-10-year-high-2017-10-01). The jump may give central bankers the confidence to continue easing monetary policy after the BOJ's controversial asset-purchasing program drew criticism that it wouldn't help inflation reach the central bank's 2% annual target.

What data are in focus out?

What other assets moved?

The uncertainty after the Catalonian referendum weighed on demand for Spanish government paper, a so-called peripheral eurozone country. This widened the yield spread between it and bonds backed by healthier economies like Germany, reflecting investors were demanding more compensation, higher yields, for Spanish debt.

The German 10-year government bond yield fell more than a basis point to 0.453%, even as the yield for an equivalent Spanish government bond jumped 9 basis points to 1.704%.

(END) Dow Jones Newswires

October 02, 2017 12:52 ET (16:52 GMT)