BOND REPORT: 10-year Treasury Yield Climbs To Five-month High

By Sunny Oh Features Dow Jones Newswires

10-year Treasury yield pushes above 2.40%,

Continue Reading Below

Treasury prices slipped, pulling yields higher, on Tuesday trade amid expectations for further progress on tax legislation, renewed speculation over who will become the next chief of the Federal Reserve and anticipation ahead of a European Central Bank policy meeting.

Where are Treasury yields?

The benchmark 10-year Treasury yield climbed 3 basis points to 2.406%, trading at its highest since May 10. The 30-year bond yield also rose by 3 basis points to 2.922%. But action in the 2-year yield was muted as it remained unchanged at 2.569%. Bond prices move in the opposite direction of yields.

What's driving markets?

Investors expect the European Central Bank on Thursday (http://www.marketwatch.com/story/mario-draghi-needs-to-avoid-a-taper-tantrum-when-the-ecb-meets-2017-10-23) to announce tapering of its asset-purchasing program beginning from next year. A shift away from monetary accommodation can pull European bond yields higher, giving added momentum to the climb in Treasury yields. Interest rates in developed markets like the U.S. and Germany tend to move in sync.

Continue Reading Below

Tax cut expectations continue to run high as President Donald Trump meets Senate Republicans on Tuesday for lunch to stir up support for the tax overhaul, which investors say, if passed, could add pressure to the bond market, pushing up yields. If Trump's tax plan does not stimulate growth to make up for the fall in tax receipts, the concern is the rise in fiscal deficits will necessitate the Treasury Department to unload new government debt onto the market, weighing on prices.

Trump on Monday said he was "very, very close" to making a pick (http://www.marketwatch.com/story/trump-today-president-says-hes-very-very-close-to-naming-pick-for-fed-chief-2017-10-23) for the next Fed boss. Market participants feel his choice could prove crucial to the direction of the central bank as a more hawkish chairperson could oversee a more faster pace of rate hikes.

See:Can a Powell-Taylor ticket at the top of the Fed really work? (http://www.marketwatch.com/story/can-a-powell-taylor-ticket-at-top-of-the-fed-really-work-2017-10-23)

Trump, visiting Capitol Hill on Tuesday, asked Senate Republicans for a show of hands on who they thought he should pick to run the Fed when Chairwoman Janet Yellen's term ends in February, according to lawmakers in the room. A Republican senator said Stanford University Professor John Taylor was the apparent winner (http://www.marketwatch.com/story/trump-asked-senate-republicans-who-should-be-next-fed-chair-and-john-taylor-reportedly-was-the-winner-2017-10-24).

What did market participants say?

"On the political side, Republican leaders are hoping to have a more fleshed out plan for a tax cut released next week which should kick off intense lobbying over the details as well as offer a better idea of the actual impact of a plan. We're in a relative calm before the storm in the context of what we expect will be a deluge of political headlines in the coming week," said Aaron Kohli, fixed-income strategist for BMO Capital Markets.

Scott Minerd, global chief investment officer for Guggenheim Partners, highlighted the importance of tax cuts to the future path of Treasury yields, and other assets on Twitter.

(https://twitter.com/ScottMinerd/status/922862341720563713)

(https://twitter.com/ScottMinerd/status/922874056160014336)

What else are on investors' radar?

What are other assets doing?

European government bonds sold off along with Treasurys after a solid reading in the composite purchasing mangers index (http://www.marketwatch.com/story/eurozone-economy-appears-to-slow-in-october-2017-10-24), which fell to 55.9 in October, from 56.7 the previous month, but still signaled expansion. The German 10-year government bond yield rose 4 basis points to 0.474%. Though the pace of growth slowed down, the report said producer prices rose at the fastest rate since June 2011.

(END) Dow Jones Newswires

October 24, 2017 16:24 ET (20:24 GMT)