BOND REPORT: Treasury Yields Slip As Geopolitical Tensions Rise; Trump Seen Favoring Powell For Fed Boss

By Sunny Oh Features Dow Jones Newswires

Trump is expected to select a new head of the Federal Reserve by Nov. 3

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Treasury prices rose, pulling yields lower, on Thursday after geopolitical tensions in Spain flared up. Meanwhile, reports late-afternoon indicated that President Donald Trump was leaning toward Fed. Gov. Jerome Powell as the next Federal Reserve chief (http://www.marketwatch.com/story/trump-reportedly-leaning-toward-powell-for-fed-chairman-2017-10-19).

How are Treasurys doing?

The benchmark 10-year Treasury yield fell 2 basis points to 2.323%. The 2-year yield edged lower a basis point to 1.555%, inching away from the 10-year high set on the previous session. While, the 30-year yield dipped 2 basis points to 2.829%. When bond prices rise, yields fall.

What's driving markets?

Early in the session, investors flocked to assets perceived as safe including government paper, gold and the Japanese yen on the back of intensifying tensions between Spain's central authorities and the Catalan government as Spanish Prime Minister Mariano Rajoy said he would suspend the region's autonomy if the Catalan government stayed on its current track.

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Investors are concerned a full-blown secession could endanger the viability of the European Union, by encouraging other separatist movements in Europe.

Treasury yields extended their decline after 3 p.m. Eastern, when MarketWatch registers end-of-day levels for government bonds, amid a report from Politico (http://www.politico.com/story/2017/10/19/jerome-powell-trump-candidate-federal-reserve-chair-243957) that Fed. Gov. Jerome Powell was the leading candidate to become the next Fed boss when Chairwoman Janet Yellen's tenure ends next February. Powell is seen as a continuity candidate and someone whose views closely align with Yellen, a monetary dove. Investors feel he would push for a less aggressive trajectory of rate increases, which is also in line with the president's rhetoric.

See: Standoff in Spain intensifies, as government gears up to strip autonomy from Catalonia (http://www.marketwatch.com/story/standoff-in-spain-intensifies-as-government-gears-up-to-strip-autonomy-from-catalonia-2017-10-19)

What did market participants say?

"The contagion will be a much broader affair which may bring a second swipe at the very foundations of the European Union," wrote Mark Grant, chief market strategist for Hilltop Securities. "Brexit is bad enough but a second front, which I have labeled "Cat-a-pult," could bring the entire construct to its knees."

What else are on investors' radar?

How did other assets do?

The Spanish 10-year government bond yield briefly spiked to intraday highs before returning close to break-even levels of 1.620%. Haven goldrose $7.00, or 0.6%, at $1,290 an ounce (http://www.marketwatch.com/story/gold-perks-up-as-geopolitical-tensions-in-europe-resurface-2017-10-19). The Japanese yen, also considered a haven, strengthened, with the dollar buying Yen112.56, compared with Yen112.93 late Wednesday in New York.

(END) Dow Jones Newswires

October 19, 2017 16:51 ET (20:51 GMT)