BOND REPORT: Treasurys Claw Back Losses As Talk Of Taylor As Next Fed Boss Eases

By Sunny Oh Features Dow Jones Newswires

President Donald Trump is set to meet Federal Reserve Chairwoman Janet Yellen on Thursday

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Treasurys retraced their losses on Tuesday after abating concerns that a potential replacement for Federal Reserve Chairwoman Janet Yellen next year would be more aggressive in raising interest rates.

What are Treasurys doing?

The benchmark 10-year Treasury yield fell a basis point to 2.298% after hitting an intraday high of 2.338%. The 2-year yield edged lower to 1.538% from 1.542%, retreating from a 10-year high. While, the 30-year yield fell 2 basis points to 2.806%. 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 isn't reappointed, unsettled investors. The creator of the Taylor rule, which suggests interest rates should be three times as high as they are now. If appointed, its surmised by analysts that Taylor could lead to much tighter monetary policy. That said, Taylor would likely moderate his views once at the helm of the central bank, strategists speculate.

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However, it isn't clear that Taylor is the front-runner, with Trump slated to meet Yellen on Thursday.

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)

What do market participants say?

"We're hearing some dip-buyers coming in. But there is also some chatter that its more of an open field on who will be the next Fed head. We saw some weakness of the back of the rumors of that Taylor would be chosen. I now see some pushback against that narrative as there's no real consensus yet," said Larry Milstein, managing director of government and agency trading at R.W. Pressprich & Co.

What else is on investors' radar?

What are other assets doing?

The yield for the 10-year U.K. government bond, or gilt, slid 6 basis points to 1.28%, while the pound also fell to $1.3179 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) on late Monday.

Bank of England Gov. Mark Carney said inflation hadn't t hit its ceiling even after it hit 3%, the fastest pace in more than five years. His refusal to indicate whether the central bank should raise rates in November and dovish remarks by and new deputy Gov. Dave Ramsden have cast doubt that the BOE will tighten monetary policy next month.

(END) Dow Jones Newswires

October 17, 2017 14:53 ET (18:53 GMT)