BOND REPORT: Treasury Yields Extend Rise After Stronger-than-expected Import Prices

By Sunny Oh Features Dow Jones Newswires

Import prices rose 0.7% in September, above economists' forecasts of 0.3%.

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Treasurys saw modest selling, pushing yields higher, on Tuesday after better-than-expected economic data and renewed concerns that a potential replacement for Federal Reserve Chairwoman Janet Yellen next year could be more aggressive in raising interest rates.

What are Treasurys doing?

The benchmark 10-year Treasury yield rose 2 basis points to 2.324%. The 2-year yield edged higher to 1.546% from 1.542%, a fresh 10-year high. While, the 30-year yield added a basis point to 2.836%. Bond prices move in the opposite direction as yields.

What's driving markets?

Talk of Stanford economist John Taylor's candidacy as next chair of the Federal Reserve, if Yellen is not reappointed, has continued to unsettle investors. The creator of the Taylor rule, which suggests interest rates should be three times as high as now, his appointment could lead to much tighter monetary policy, analysts said, but noted that Taylor would likely moderate his views once at the helm of the central bank.

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See: John Taylor met Trump about Fed chair post (http://www.marketwatch.com/story/john-taylor-met-trump-about-fed-chair-post-2017-10-12)

Yields have also traveled higher in the U.S. trading session since a stronger-than-expected reading for import prices. The economic data release could stoke inflationary pressures and help clinch a December rate increase.

What do market participants say?

"Professor Taylor is the new market favorite. That, in turn, has given the dollar a bit of support and sent yields a bit higher as everyone contemplates what the Taylor Rule would imply for monetary policy. It's generally concluded that a rules-based approach would deliver higher rates faster than we would see under the current policy framework," said Kit Juckes, global strategist at Société Générale.

"Inflation pressures are building up in the pipeline. Recent import price index and PPI data suggest that we will continue to see modest acceleration in consumer inflation in the months ahead," wrote Thomas Simons, senior money market economist for Jefferies.

What else is on investors' radar?

What are other assets doing?

The yield for the 10-year U.K. government bond, or gilt, slid 5 basis points to 1.29%, while the pound also fell to $1.3201 from $1.3250 (http://www.marketwatch.com/story/dollar-aims-for-4th-day-of-gains-pound-flops-despite-climb-in-uk-inflation-2017-10-17). Bank of England Gov. Mark Carney said inflation had not hit its ceiling even after it hit 3%, the fastest pace in more than five years.

(END) Dow Jones Newswires

October 17, 2017 10:00 ET (14:00 GMT)