BOND REPORT: Treasury Yields Fall On Pick Up In Geopolitical Tension, Strong Bond Auction

By Sunny Oh Features Dow Jones Newswires

Wholesale prices in September jumped to 0.4%, pushing the annual growth rate to 2.6%, the fastest pace since 2012.

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Treasury prices rose, dragging yields lower, on Thursday after unusual seismic activity was detected in North Korea, heightening geopolitical concerns. A 30-year bond auction, meanwhile, attracted strong demand from investors, also pressuring long-dated yields.

What are yields doing?

The benchmark 10-year Treasury yield fell 2 basis points to 2.323%. The shorter 2-year Treasury note yield was virtually unchanged at 1.517%, nonetheless hovering close to a 9-year high. While, the 30-year bond yield slipped 2 basis points to 2.854%. Bond prices move in the opposite direction of yields.

What drove markets?

The U.S. Geological Survey registered (https://earthquake.usgs.gov/earthquakes/eventpage/us1000aqsx#executive)seismic activity in North Korea, near a nuclear testing site. Unusual tremors and earthquakes have been associated with Pyongyang's testing of thermonuclear bombs. Risk-averse investors tend to flock into government paper and assets perceived as safe when geopolitical risks flares up.

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Separately, a strong auction for $12 billion of 30-year Treasury bonds helped pull yields lower. Incoming supply of government paper can influence trading for Treasurys. A common way to track the success of the sale, the bid-to-cover ratio was 2.53, the highest since Sep. 2015. It indicates the proportion of buyers to the amount of available bonds.

Investors gleaned further clues on the path of future monetary policy in the wake of the release Wednesday of the minutes from the central bank's September policy meeting. Echoing the minutes, Fed Gov. Lael Brainard said the central bank found it tough to understand the "material" decline in inflation (http://www.marketwatch.com/story/feds-brainard-says-there-has-been-a-material-drop-in-inflation-that-remains-unexplained-2017-10-12).

See: December rate hike might not be automatic, minutes of last month's meeting show (http://www.marketwatch.com/story/december-rate-hike-not-automatic-minutes-of-last-months-meeting-show-2017-10-11)

What are market participants saying?

"As has been the case for a while now, the auctions in the long-end present a liquidity opportunity for investors," wrote Thomas Simons, senior money market economist for Jefferies.

"No one seems to be addressing the fundamental point about whether monetary policy is actually stimulating inflation at all. With the Phillips curve all but moribund and no evidence that monetary policy can change structural factors in the economy, it is time for the Fed to have a deeper rethink," said James Athey, senior investment manager at Aberdeen Standard Investments. The Phillips curve is an economic theory that posits when unemployment falls, inflation rises, and vice versa.

What economic data is on investor's radar?

What central bankers said

(END) Dow Jones Newswires

October 12, 2017 16:43 ET (20:43 GMT)